Jia Lissa

JAKARTA – As Indonesia navigates a challenging economic landscape marked by weakened business sentiment and subdued public purchasing power, the Center for Indonesian Taxation Analysis (CITA) has issued a critical recommendation to the government: recalibrate tax revenue targets downwards and concurrently implement spending efficiencies. Fajry Akbar, Head of Research at CITA, argued that such a pragmatic approach would be more realistic than persistently pushing for optimal revenue generation when the nation’s underlying tax base has yet to demonstrate significant improvement. This urgent call for fiscal prudence, articulated on Saturday, July 18, 2026, comes at a time when the Directorate General of Taxes (DJP) is actively expanding its tax compliance surveillance mechanisms, incorporating advanced technology and local security apparatus.

CITA’s Call for Fiscal Realism and Economic Context

Akbar’s recommendation stems from a comprehensive assessment of Indonesia’s economic fundamentals, particularly the state of its workforce and the persistent challenge of a low tax ratio. Citing data from the International Labour Organization (ILO), Akbar highlighted that the average income of Indonesian workers remains among the lowest in the ASEAN region. This foundational economic reality, he asserted, directly correlates with the country’s comparatively low tax ratio, which also ranks near the bottom among its regional peers.

"If we use ILO data, the average income of workers in Indonesia is among the lowest in ASEAN. It’s only natural that our tax ratio is also one of the lowest in ASEAN," Akbar stated, underscoring the systemic issues underlying Indonesia’s revenue generation challenges. This perspective emphasizes that simply increasing surveillance or setting ambitious targets without addressing the root causes of limited tax capacity could prove counterproductive and economically unsustainable.

Indonesia’s tax ratio has historically hovered around 10-11% of its Gross Domestic Product (GDP), significantly lower than the average for ASEAN countries (which often exceed 15%) and far below the OECD average (around 34%). This persistent gap indicates a structural issue, often attributed to a large informal sector, a narrow tax base, limited compliance from high-net-worth individuals, and the challenges of taxing the burgeoning digital economy effectively. CITA’s stance suggests that aggressive tax collection efforts without expanding the taxable economic pie or improving income levels risk squeezing an already constrained taxpayer base, potentially stifling recovery.

DJP’s Expanded Compliance Surveillance: A New Era of Enforcement

Akbar’s remarks were delivered against the backdrop of the DJP’s recent issuance of Circular Letter (SE) Number SE-8/PJ/2026, titled "Guidelines for Taxpayer Compliance Supervision." This new directive signifies a notable shift in the DJP’s enforcement strategy, aiming to broaden its reach and deepen its data-gathering capabilities across the archipelago, extending surveillance down to the village level.

The SE-8/PJ/2026 outlines a multi-pronged approach to tax compliance. Beyond traditional direct visits, the DJP plans to harness cutting-edge information technology, including "remote sensing" and "web scraping." Remote sensing technology, typically involving satellite imagery or aerial photography, can be utilized to identify discrepancies in declared property values, undeclared construction, or business activities. Web scraping, on the other hand, allows for the automated extraction of data from public websites, potentially identifying undeclared online businesses, e-commerce transactions, or high-value asset acquisitions that might indicate undeclared income.

Perhaps the most contentious aspect of the new guidelines is the DJP’s intent to forge information networks by collaborating with local security forces: the Bintara Pembina Desa (Babinsa) – village supervisory non-commissioned officers from the Indonesian Army – and the Bhayangkara Pembina Keamanan dan Ketertiban Masyarakat (Bhabinkamtibmas) – community security and order fostering police officers. These personnel, deeply embedded within local communities, are traditionally tasked with security, public order, and community development. Their involvement in tax data collection represents a significant expansion of their roles and marks a departure from conventional civilian-led tax administration.

Expert Concerns and Potential Pitfalls of the New Strategy

Fajry Akbar expressed significant reservations regarding the DJP’s expanded surveillance framework. He emphasized that the efficacy and fairness of the new approach would hinge critically on the quality of the data obtained and the clarity of its interpretation.

"This will certainly lead to new disputes, especially if the data quality is low or if the tax authorities have different interpretations of the data," Akbar cautioned. Low-quality or ambiguous data could trigger unjustified audits, leading to prolonged disputes, increased compliance costs for taxpayers, and a potential erosion of trust between the public and the tax authority. The burden of proof often falls on the taxpayer, and contesting flawed data can be a costly and time-consuming endeavor, particularly for small and medium-sized enterprises (SMEs) with limited resources.

Akbar was particularly critical of the involvement of Babinsa and Bhabinkamtibmas in information gathering. He urged the DJP to provide explicit clarification on the nature and boundaries of this "information networking." Without clear guidelines, the collaboration risks overstepping into sensitive areas and creating an environment of suspicion rather than cooperation.

"Unfortunately, this circular letter does not explain what is meant by the development of this information network, nor its limitations. On one hand, it creates a militaristic impression in tax revenue collection, which should be the domain of civilians. On the other hand, this raises concerns for MSME actors in rural areas," Akbar elaborated. The notion of military and police personnel collecting financial information could be perceived as intimidating, potentially discouraging economic activity, especially among micro, small, and medium-sized enterprises (MSMEs) in remote areas that may already operate with limited formal documentation. For these businesses, the presence of security forces in tax matters could be seen as an undue intrusion and a barrier to growth.

Broader Economic Context and the Low Tax Ratio Conundrum

Indonesia’s economic growth in the first half of 2026, according to Akbar, was primarily buoyed by government spending. This observation leads CITA to suggest a more targeted approach to tax supervision. Instead of a broad, intensified scrutiny across all sectors, Akbar argued that tax collection efforts should be primarily directed towards those sectors and businesses that have directly benefited from this governmental expenditure.

"What drove the economy in the first half? It was largely government spending. Who benefits from government spending? Entrepreneurs involved in government projects and related sectors. Those are the ones whose taxes should be pursued," he stated. This strategic focus aims to optimize revenue from sectors demonstrably profiting from public funds, ensuring a fairer distribution of the tax burden and potentially reducing the pressure on struggling businesses.

The persistent low tax ratio in Indonesia is a multifaceted issue. Beyond the average income levels, factors such as the sheer size of the informal economy, a complex tax system, and challenges in tax administration contribute to the problem. Efforts to broaden the tax base have often included tax amnesty programs, but their long-term impact on sustainable compliance has been debated. The current push for technology-driven surveillance and local networks can be seen as the DJP’s attempt to address these structural issues by improving data accuracy and expanding its reach into previously untaxed segments of the economy. However, the method of expansion is now under scrutiny.

Official Responses and Stakeholder Reactions (Inferred)

While the original article does not provide direct counter-statements from the DJP or the Ministry of Finance, their likely responses can be logically inferred given their roles and past policy pronouncements.

The Directorate General of Taxes (DJP) would likely defend its new strategy by emphasizing the critical need to broaden the tax base, enhance compliance, and ensure tax justice. They would argue that the utilization of remote sensing and web scraping is a necessary modernization effort to leverage technology for more efficient and accurate tax assessment, aligning with global trends in digital tax administration. Regarding the involvement of Babinsa and Bhabinkamtibmas, the DJP would likely clarify that their role is strictly limited to information gathering and fostering awareness, not direct enforcement or audit. They would stress that these local figures act as community liaisons to identify potential economic activities that may not yet be within the tax system, without engaging in tax assessments or collection. The DJP would also likely reiterate its commitment to taxpayer rights, data privacy, and robust dispute resolution mechanisms to mitigate the risk of unwarranted disputes.

The Ministry of Finance would typically reinforce the government’s commitment to fiscal health and sustainable revenue generation. They would likely acknowledge the economic challenges but stress the importance of maintaining a stable revenue stream to fund public services and development programs. While recognizing the need for economic stimulus, they would underscore that a strong tax base is fundamental for long-term fiscal stability and reducing reliance on debt. They might express confidence in the DJP’s ability to implement the new guidelines fairly and effectively, balancing revenue needs with support for economic recovery.

Business associations, such as the Indonesian Chamber of Commerce and Industry (KADIN) and the Indonesian Employers Association (APINDO), would likely echo CITA’s concerns. They would probably highlight the potential for increased administrative burdens, compliance costs, and the risk of harassment for businesses, particularly MSMEs, under intensified surveillance. They might advocate for a more facilitative approach to tax collection, focusing on incentives for voluntary compliance and simplifying tax procedures, rather than aggressive enforcement during a period of economic fragility. Concerns about the "militaristic" impression and its impact on business confidence, especially in rural areas crucial for economic equity, would also likely be raised.

Legal experts and human rights advocates might scrutinize the legality and ethical implications of involving non-tax personnel (Babinsa and Bhabinkamtibmas) in tax information gathering. Questions would likely arise about the legal basis for such collaboration, potential infringements on privacy rights, and the clarity of accountability mechanisms should disputes or abuses occur. They might call for stronger legal frameworks and oversight to ensure that the expansion of tax surveillance does not compromise civil liberties or create an environment conducive to arbitrary actions.

Implications for Tax Policy and Economic Recovery

The divergence between CITA’s call for fiscal realism and the DJP’s intensified compliance drive sets the stage for a critical debate on Indonesia’s future tax policy.

• Impact on Tax Compliance: The new surveillance methods could potentially increase the formal tax base by uncovering undeclared economic activities and individuals. However, if perceived as overly aggressive or unfair, it could also lead to resistance, increased avoidance, or even push some informal businesses further underground. Voluntary compliance, often seen as the most sustainable form of tax revenue, thrives on trust and fairness, which could be jeopardized by methods perceived as intrusive or intimidating.
• Increased Tax Disputes: As Fajry Akbar noted, lower quality data or differing interpretations are a recipe for disputes. An increase in disputes would strain the DJP’s resources, create uncertainty for businesses, and potentially delay revenue collection, counteracting the goal of efficiency.
• MSME Growth and Investment Climate: The concerns raised about MSMEs in rural areas are particularly pertinent. These small businesses are the backbone of the Indonesian economy, contributing significantly to employment and regional development. If the new surveillance creates an atmosphere of fear or excessive burden, it could stifle their growth, deter new investments, and hinder the government’s broader efforts to empower MSMEs. A negative perception of tax enforcement could also affect the overall investment climate.
• Public Perception and Trust: The involvement of security forces in tax matters, particularly without clear boundaries, carries the risk of eroding public trust in tax authorities. Transparency, accountability, and a clear distinction between civilian and security roles are paramount to maintaining public confidence in government institutions.
• Balancing Act: Ultimately, the challenge for the Indonesian government lies in striking a delicate balance. It must secure sufficient revenue to fund its ambitious development agenda and maintain fiscal stability, while simultaneously fostering a supportive environment for economic recovery and ensuring fairness and equity in its tax administration. The choices made in implementing SE-8/PJ/2026 and responding to calls for fiscal realism will have profound implications for Indonesia’s economic trajectory and social contract in the years to come.

In conclusion, as Indonesia moves forward into 2026, the debate ignited by CITA’s recommendations and the DJP’s new compliance measures highlights a crucial inflection point for the nation’s fiscal policy. The path chosen – whether it leans towards recalibrated realism or aggressive enforcement – will significantly shape the recovery of its businesses, the welfare of its citizens, and the long-term health of its economy. The success of any strategy will ultimately depend on its ability to expand the tax base fairly, enhance compliance transparently, and maintain the public’s trust.