Prabowo’s Incoming Govt to See Record-High Tax Expenditure

Prabowo’s incoming administration is projected to generate a record-high tax expenditure as the pair plans to spur the country’s income tax (PPh) and value-added tax (VAT) revenue.

Editorial Team

6 Jun 2024 - 17.47
Prabowo’s Incoming Govt to See Record-High Tax Expenditure

Illustration - President-elect Prabowo Subianto (right) shaked hands with President Joko Widodo at an event./Bisnis

Bisnis, JAKARTA — The incoming government led by president-elect Prabowo Subianto is projected to generate the highest tax expenditure in Indonesia’s history.

The Finance Ministry estimates that tax expenditures in 2025, the first year of the Prabowo term, will reach IDR421.28 trillion. Compared to 2024’s estimate of IDR374.53 trillion, the latest projection marks a 12 percent increase and the most significant growth since the Covid-19 pandemic.
The expenditure will be focused on income tax (PPh) and value-added tax (VAT). Rate discounts, including tax holidays, will continue to dominate income tax incentives. Meanwhile, VAT incentives will include government-borne VAT with beneficiary sectors, primarily tourism, manufacturing, and agriculture.
The incentives aim to boost consumer purchasing power and the business climate for faster economic growth, indicating that the incoming administration will be more “generous” in rolling out tax incentives.
On the other hand, the incentive programs may add more fiscal burden for the state amid a widening budget deficit in 2025, with a maximum allowance of 2.8 percent. The new administration also has the homework of raising the tax-revenue-to-GDP ratio, which has been stagnant at around 10 percent.
 Ajib Hamdani, an economic policy analyst from the Indonesian Employers Association (Apindo), believes that government spending must be accurately targeted to boost the national economy and suggests government-borne incentives for sectors involving many stakeholders and businesses would be a viable measure for this goal.
“Government-borne taxes should go to sectors with maximum leverage, such as labor-intensive sectors that involve more businesses. This includes MSMEs because they can stand to be livelier,” he said during a discussion at the HIPMI Tax Center on Wednesday (6/5/2024).
On the same occasion, Haula Rosdiana, a professor at the University of Indonesia and tax policy expert, argued that with Prabowo's tax-friendly policy, significant spending could have a multiplier effect in increasing production, thereby absorbing more labor. As a result, public consumption will rise, providing demand to other sectors.
“Don't think the country gets nothing with forgone revenue; there is PPh 21, and there is a specific goods and services tax,” she said.
According to the 2023 Central Government Financial Report (LKPP), tax incentives disbursed amounted to IDR352.83 trillion. Non-oil and gas income tax revenue amounted to IDR983.269 trillion, accounting for 73.78 percent of total non-oil and gas income. 

This mainly came from PPh 25/29 for corporations, which amounts to IDR406.30 trillion, PPh 21, which has IDR200.85 trillion, and PPh final, which has IDR125.09 trillion. Meanwhile, state revenue from VAT on luxury goods amounted to IDR761.53 trillion.
Apindo Chairwoman Shinta Widjaja Kamdani acknowledged the necessity of tax expenditures in several sectors, including the processing industry, agriculture, and trade sectors, to support national economic growth.
“Allocation needs to be adjusted to the needs of sectors that support economic growth and are still in post-pandemic recovery,” Shinta told Bisnis.
Chandra Wahjudi from the Indonesian Chamber of Commerce and Industry (Kadin) said that tax expenditures must be balanced with tax revenue and that the government must focus on sectors supporting economic growth. “If revenue is lacking, then the expenditure has to be adjusted,” Chandra stated.
While businesses are the obvious target for tax incentives, Chandra noted that they can also boost the public's purchasing power.

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© Copyright 2024, Hak Cipta Dilindungi Undang - Undang.