By: Wisnu Saka Saputra, the Directorate General of Taxes officer

 

Disclaimer: In order to keep public servant neutrality in general election, this article is not intended to support/discredit any candidate. The article cannot be quoted, partly nor entirely, to be utilized for any general election campaign material.

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Indonesia has the opportunity to become an advanced country in the 2030s, during its demographic bonus period. The 2024 elections are crucial, as choosing leaders in that year is part of preparing to become an advanced nation. If the wrong leaders are chosen, this rare opportunity will be lost.

In the 2030s, Indonesia will experience the peak of its demographic bonus, where 68.3 percent of the total population will be of working age (BPS, 2022). The demographic bonus is marked by a decrease in the dependency ratio, indicating a decline in the ratio of the non-working-age population to the working-age population.

The demographic bonus occurs only once in a nation's civilization. It can be a blessing, but it can also be a disaster if Indonesia's leaders fail to manage it properly. Looking at countries that have experienced demographic bonuses and utilized them effectively, especially in terms of human resources and technology, China and India stand out. The rapid population growth and urbanization that have occurred over the years have opened up opportunities for China and India to further boost their economies through openness, reform, and innovation, particularly in technology (Astrid Savitri, 2019: 11-18).

To realize and harness the demographic bonus as China and India have done, Indonesia needs adequate capital. The primary capital needed to realize this demographic bonus is increased state revenue from the taxation sector.

Of all the efforts made by the government, it is important for the public to realize that fiscal policies related to taxation still play a crucial role in the economy. Especially with the impending demographic bonus, the existence of tax revenue becomes increasingly urgent.

One of the main challenges in planning to increase tax revenue is the low tax ratio. Indonesia's tax ratio in 2022 was 10.4%, below the global average of 13.5%. According to the International Monetary Fund (IMF), a tax ratio of 12% is needed to boost economic growth.

Building a Responsive Tax System

The government realizes that addressing the issue of low tax ratios requires comprehensive changes. One step taken is through tax reform. President Joko Widodo has shown his commitment to supporting this reform through the issuance of Presidential Regulation (Perpres) Number 40 of 2018 concerning Tax System Administration Renewal.

Tax reform is carried out to achieve the nation's self-sufficiency in funding national development by optimizing domestic capabilities, especially in taxation (Dhestiani & Fatma, 2021: 174).


Through tax reform, the government aims to build a tax system that is responsive to changing times. The current tax reform being undertaken by the Directorate General of Taxes (DJP) is tax reform volume III.

In the development of tax reform volume III, the five pillars of tax reform are crucial foundations. These five pillars are organizational, human resources, data-based information technology, business processes, and regulations.

Like a house, the goal of tax reform is voluntary compliance in order to optimize tax revenue supported by a strong, credible, and accountable tax institution. This goal will not succeed without the five foundational pillars. It's like a house won't stand without foundation pillars.

One of the most important aspects of this tax reform is the use of technology in a tax data bank. The DJP has realized the Single Identity Number (SIN) through the NIK-NPWP matching program. Starting January 1, 2024, the Population Identification Number (NIK) will replace the Taxpayer Identification Number (NPWP) in tax transactions.

The integration of NIK as NPWP is intended to simplify tax administration processes. This integration will create a tax data bank that will provide solutions to achieve revenue targets through tax extension and intensification.

Tax Facilities for the Younger Generation

Tax reform always runs on two parallel sides: reform in tax administration and reform in tax policies. Tax administration reform has been carried out by the government through Tax Reform Volume III. This reform relates to how the government collects tax revenue optimally.

Meanwhile, tax policy reform relates to subjects, objects, and tax rates. Responsive tax policy reform is one way to provide incentives to taxpayers. Tax incentives are provided to encourage economic activities, especially in the development of Indonesia's golden generation of businesses.

Tax incentives for the younger generation can be applied by providing tax exemptions or low tax rates for young generation businesses, education and training incentives, research and development (R&D) incentives, investment incentives in strategic sectors, tax exemptions for start-ups, and incentives for knowledge sharing and innovation.

The purpose of these tax incentives is to encourage the active participation of the younger generation in the economy, create jobs, increase productivity, and contribute to overall economic growth. Tax incentives provided by the younger generation will stimulate them to actively engage in the country's economy.

If 60% of Indonesia's golden generation is provided with tax incentives and utilizes existing incentives, Indonesia's state budget will increase multiple times. This will impact the country's development, and the facilities provided by the state will become more beneficial.

Indonesia's greatest asset is its quality human resources. Improving the capacity and quality of human resources will be the game changer for Indonesia's future to achieve optimal economic growth. Tax reform plays an important role in facilitating the achievement of optimal economic growth in order to utilize the demographic bonus. Harnessing the role of the younger generation to jointly usher in Indonesia's golden age by 2045.

 

*) This article represents the author's personal views and does not represent the stance of the institution. The Indonesian version of this article has been published on DDTC News on November 1st, 2023.

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