Broadening the Base: Improving Tax Administration in Indonesia, 2006-2016

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Abstract 

In the mid 2000s, Indonesia’s Directorate General of Taxes (DGT) was still struggling to recover from the shock of the Asian financial crisis of the previous decade. Tax revenue had plummeted during the crisis, and the collection rate remained well below accepted standards, as well as below the standards of many peers in the region. In 2006, the directorate’s new leaders launched a nationwide overhaul, drawing lessons from a successful pilot program that had reorganized the DGT’s biggest offices and enabled large taxpayers to settle all of their tax-related affairs with a single visit to one office rather than having to go through multiple steps. Expanding that pilot to more than 300 locations across a 3,000-mile archipelago presented no small challenge. The implementers built a digital database that linked all offices to a central server in the capital of Jakarta, developed competency testing and training that bolstered the quality of staff, and created new positions to improve relationships with taxpayers. Other measures aimed to reduce corruption and tax fraud. When political and practical crosswinds frustrated the DGT’s efforts to build the workforce its leaders thought it needed, the agency turned to big-data analytics to improve compliance and broaden the tax base. By 2018, domestic revenue mobilization had plateaued, but the changes introduced had produced important improvements. The question was then what to do to broaden the base further without decreasing incentives for investment or raising administrative costs to unsustainable levels.

Leon Schreiber drafted this case study based on interviews conducted in Jakarta in January and February 2018. Case published April 2018.

 

Keywords 
civil service
anitcorruption
staffing reform
tax revenue
revenue generation
Focus Area(s): 
Financial Management
Critical Tasks: 
Computerization of records
Corruption in the Civil Service
Financial controls
Independent agencies
Integration and amalgamation
Making services accessible
One-stop shops
Organization and staffing
Overcoming corruption
Reducing corruption
Revenue generation
Technology & innovation initiatives
Core Challenge: 
Capacity (capability traps)
Coordination
Credibility (trust)
Principal-agent problem (delegation)
Country of Reform: 
Indonesia
Type: 
Case Studies
Author: 
Leon Schreiber