Indonesia Targets Shadow Economy for Tax Revenue

 

Indonesian government is currently targeting shadow economy, or underground economy, as a significant new source of tax revenue. The diverse potential for taxation within shadow economy operations was expressed by Deputy Minister of Finance, Anggito Abimanyu on 28 October 2024.

Coordinating Minister for Economic Affairs, Airlangga Hartarto, shared the same idea that the government is actively working towards a more transparent view of economic activities to minimize tax evasion. While details on specific strategies for taxing shadow economy operations have yet to be disclosed, Airlangga emphasized the importance of monitoring these sectors.

Better Monitoring and Regulation

The government is now evaluating how to incorporate shadow economy activities into the tax administration framework.

“Ideally, there should be no shadow economy; the more official these activities become, the better for tax monitoring and overall regulation,” said Airlangga on October 29, at the Coordinating Ministry for Economic Affairs.

Quoting CoreNews.id, according to Anggito, earnings from the shadow economy remain largely untracked by tax authorities, creating a missed opportunity for public revenue. This lost tax revenue could hinder economic growth and limit the government’s ability to fund public programs.

As a result, Anggito has urged the Directorate General of Taxes (DGT) to intensify oversight on shadow economy activities, which compromise Indonesia’s tax revenue.

“Because it is not recorded as fines subject, is considered legal, and does not pay taxes.” Anggito said.

What is the Shadow Economy?

The shadow economy refers to economic activities that go unrecorded in official statistics or lack government approval, despite contributing to both gross national product (GNP) and gross domestic product (GDP).

Anggito takes examples of the shadow economy include online games and online gambling which the income is untaxed.

CNBC Indonesia quoting Journal of Tax Studies (Volume 2, No. 1, October 2020), “Shadow Economy, AEOI, and Tax Compliance” written by Muhammad Dahlan of the Directorate General of Taxes, which describes the shadow economy as involving individuals, households, or businesses that deliberately evade government reporting to avoid taxation, often referred to as the underground or informal economy.

Tax Potential from Shadow Economy Transactions

In Indonesia, shadow economy transactions contribute approximately 8-19% of GDP, as highlighted in the Indonesian Journal of Tax Studies (Volume 2, No. 1, October 2020).

According to CoreNews.id, data from the Indonesian Financial Transaction Reports and Analysis Center suggests that shadow economy activities could represent up to 30-40% of the country’s GDP. If compared to Indonesia’s 2020 GDP of IDR 20,892.4 trillion, the value of the shadow economy could exceed IDR 6,000 trillion.

Anggito pointed to online gambling by Indonesians abroad, particularly in sports betting, as a prime example of taxable shadow economy activities.

“If they win, technically that income should contribute to personal income tax (PPh), yet they are unlikely to report gambling earnings,” he explained.

Developing a Tax Formula for the Shadow Economy

Anggito stressed the need for the DGT to develop smart strategies to tax these “super-income” sources from the shadow economy, including the imposition of tax on online games that generate profits in international competition.

“Tax officials need to explore and identify additional income streams from the underground economy. For instance, if individuals earn income from international gaming competitions or offshore platforms, they should be taxed on those earnings,” he added.

 

Source: voi.id, CNBC Indonesia, CoreNews.id, katadata

The post Indonesia Targets Shadow Economy for Tax Revenue appeared first on Invest Indonesia.

Nusantara Continues Developing With More Groundbreaking Ceremonies
According to reporting from Antara News, next week will see groundbreaking ceremonies for hospitals,...
IKN Development Stimulates Economic Growth
Asian Development Bank (ADB) Director for Indonesia, Jiro Tominaga, told Antara News on Monday (27/5/24,)...
Red and White Cabinet Retreat Builds Synergy and Discipline
In an official release on the website of The President of The Republic of Indonesia, the Red and White...
President: Big Opportunity to Achieve a Golden Indonesia by 2045
According to reporting from Antara News, President Jokowi posted congratulations on Youth Pledge Day...
Russian development in Ubud
  Forest cleared in Ubud to create “Hidden City”. https://www.abc.net.au/news/2024-02-10/ubud-bali-russian-development-hidden-city/103413004