Looking at the proposed state budget for 2013 which the House of Representatives expects to pass sometime in October, Indonesia’s fiscal policy for next year still needs improvement to stimulate a more dynamic economy, despite some progress.
One major concern is the revenue target. The government proposes to set the target for tax revenue at around Rp 1,179 trillion (US$125 billion), or 12.7 percent of GDP. Given the high economic growth for the last five years, it seems that there is room for the government to push the number to around 13 percent. This would require the government to seriously make an extra effort to eliminate problems in our national taxation system: lack of compliance and tax evasion.
Instead of having this modest revenue target, the government should increase revenue and avoid a “tax illusion”, which will occur if revenue increase is not followed by fiscal space increase.
Indonesia’s fiscal space has been stagnant at around 20-22 percent for the last five years. At the same time, tax revenue grew at an average of 15.5 percent per year. This figure indicates that tax revenue growth has not impacted fiscal space positively, merely offset growth of non-discretionary expenditure.
Just like the tax revenue projection, expected non-tax revenue (PNPB) for 2013 is a modest Rp 324.3 trillion, a significant decrease from the 2012 target of Rp 341.1 trillion. Hence, the projected contribution to total revenues declined from 25.1 percent to 21.5 percent. This was clearly an anomaly given the trend in non-tax revenues in recent five years has been positive at an average growth level of 11.4 percent per year. This downward target could indicate a lack of government effort to boost non-tax revenue.
There are several strategies that could increase non-tax revenues.
A serious revamp of government earnings from companies (state-owned enterprises as well as private) that manage natural resources, in a form of royalties and revenue sharing is needed.
Non-tax revenue from natural resources could be increased significantly if royalties were calculated accurately and transparently. A comprehensive audit is needed as well as a renegotiation of oil and mining contracts.
The government’s policy is to include 1.36 million barrels of oil equivalent per day of natural in the 2013 budget. This should encourage more transparent revenue calculations in the gas sector, which has not been the case for a long time. But this inclusion of gas in the budget should not be a justification for unlimited exploitation of gas without thought for the nation’s future energy supplies.
The government must realize that gas as an alternative energy not only increases state revenue, but strengthens economic development as it is a promising alternative energy that could preserve domestic interests.
Revenue from the non-oil/gas sector such as forestry, fisheries and geothermal power is still very low even though the potential is huge. To increase revenue from forestry, the government must reassess concessions already given to various companies so that revenue from forestry can be maximized.
Increasing revenue from fisheries requires an integrated maritime industry from upstream to downstream. As the largest archipelago in the world, Indonesia should take serious steps in building its blue economy,
Finally, we should all agree that boosting state revenue is not necessarily the panacea for Indonesia’s economy.
Many problems need to be solved in fiscal policy, such as the level of government spending and the quality of that spending. Boosting state revenue is the first step that should be taken to make the state budget work for the people.
The writer is a member of House of Representatives’ Commission on Finance, National Development Planning, Banking, and Non-Banking Institutions Affairs from the Prosperous Justice Party.
