Embracing the Third Chapter of Indonesian Tax Reform

By Andrean Rifaldo, an employee of the Directorate General of Taxes

Reformation is a primary pillar in creating an efficient integrated tax system. Since the early 1983, reform has emerged as a crucial element in shaping the foundation of Indonesian tax administration system, continuously striving to improve its administrative efficiency and effectiveness.

In 1983, a major transformation within the Indonesian tax system placed full trust in taxpayers to fulfill their tax obligations through a self-assessment system. This moment was a significant milestone in the ongoing journey of tax reform.

Since then, the tax system has undergone three constitutional reforms in 1994, 2000, and 2009. Additionally, two bureaucratic reform initiatives have been in progress since 2002 and 2009.

Now, we are entering a new phase of tax reform after the Minister of Finance Sri Mulyani, in 2017, launched the Tax Reform Program, which includes a series of significant updates. Among them is the Core Tax Administration System Reform, commonly known as PSIAP.

Set to be effective in May 2024, the ambitious integration of various tax applications into a single integrated ecosystem is a step to redesign related tax business processes. This move comes after a series of organizational restructuring and regulatory improvements.

The goal? To make it even easier for more than 69 million taxpayers to fulfill their tax obligations.

This Third Chapter of Tax Reform highlights five main themes: organization, human resources, legislation, business processes, and information technology and data. The PSIAP, which requires a huge amount of investment, is an integral part of the fifth theme.

Benefits for Taxpayers

In the near future, one of the crucial features that will be available is a personal portal that allows taxpayers to monitor and receive real-time reminders about their tax obligations. The concept of designing such a portal is not new.

For instance, in the United States, there is the IRS Online Account, which enables taxpayers to make payments and track the progress of their tax refunds. Similarly, in Singapore, taxpayers can access the myTax Portal to obtain information regarding their tax rights and obligations, both past and present.

However, to ensure that this concept works effectively within our tax system, the full support of taxpayers in integrating their National Identity Number (NIK) and Taxpayer Identification Number (NPWP) is highly necessary. The data validation process can be carried out independently through DJP Online until the end of this year. As of August 2023, a number of taxpayers have not yet matched this data.

The creation of a single identity number will not only support the launch of the taxpayer portal, but also play a vital role in creating a more efficient process for fulfilling tax obligations. The NIK will be able to replace the NPWP in various transactions with third parties that require tax identification.

Reforming Regulations

However, this tax reform is not just about updating the tax technology system. Regulatory improvements are also an essential part aimed at aligning with a better business climate and economic fairness.

Through the Tax Regulation Harmonization Act (UU HPP), a reduction in income tax rates for businesses has been implemented, with the hope of promoting domestic investment and creating more job opportunities.

This change benefits not only corporations but also individual micro, small, and medium-sized business operators (UMKM or MSMEs) who are exempt from income tax if their gross turnover does not exceed Rp500 million per year. This step fulfills the important commitment to protect the livelihoods of more than 9.1 million of our citizens.

On the other hand, sustainable environmental economics is supported through carbon tax policies. This new type of tax, effective from 2025, is expected to reduce harmful carbon emissions that impact the environment.

Furthermore, to increase the central role of taxation in the state budget, the tax base is expanded through the implementation of Value Added Tax on Trade Through Electronic Systems (PPN PMSE) which has been in effect since July 2020. Throughout this year, this policy has generated revenues of Rp13.87 trillion collected from 158 businesses.

As a result, this tax reform truly represents a significant revolution. It brings comprehensive improvements, not only in regulatory aspects but also in bureaucratic efficiency. As these reforms continue to shape the tax landscape, they hold the promise of a more equitable and prosperous future.

*) This article represents the author's personal views and does not represent the stance of the institution.

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