Tax Policy Outlook 2024

By Andrean Rifaldo, the Directorate General of Taxes officer

The Indonesian government has officially set the tax revenue target at Rp1,988.9 trillion ($127.5 billion) in the 2024 State Budget (APBN). To achieve this targeted growth of 9.4 percent, 2024 is expected to be a year full of challenges and changes in the taxation climate. Recently, on November 29, the OECD projected a global economic slowdown in 2024. Meanwhile, the World Bank also predicted a 4 percent fall in commodity price indices within the next year. This slowdown hints a weakening of global trade flows. It will then impact tax revenues from the import sector, which had already contracted by 6.9 percent as of September 2023. 

However, Indonesia’s economic growth projection for 2024 remains optimistic at 5.2 percent, far exceeding the OECD and G20 averages of 1.4 percent and 2.8 percent, respectively. This growth is expected to be driven by the strengthening of the purchasing power and the labor market. These two essential sectors will be the main drivers in increasing the income tax and value-added tax revenue.

To realize this revenue potential, the Assistant of Finance Minister for Tax Compliance, Yon Arsal, stated that expanding the tax base would be one of the main policies. One of these measures is through the integration of the Personal Identification Number (NIK) into the Tax Identification Number (NPWP). In the Press Conference of State Budget 2024, the Director General of Tax, Suryo Utomo, revealed that the implementation would commence in mid-2024, delayed from the initial plan of January 2024.

This delay occurred because many taxpayers have yet to complete data validation. As of November 2023, only 59.3 million (82.4 percent) out of 72 million NIKs have undergone matching. Furthermore, the integration of both identification numbers is aimed at preparing a novel core tax administration system (CTAS) that will be implemented starting mid-2024. This Rp2.9 trillion ($185.8 million) project will unify all taxation services into a single, more efficient portal. The migration of the taxation system brings significant changes to simplify tax administration. Previously, in 2020, a survey by the German Research Foundation placed Indonesia at the 26th position on the list of countries with the most complex tax administration systems.

Another simplification has also been designed for employee income tax, known as Article 21 Income Tax. Scheduled to take effect from January 2024, the use of an average effective tax rate will replace the current progressive tax rate scheme, along with the applicable tax-free income threshold (PTKP). In continuing efforts to support ease of compliance, several tax incentives are also provided throughout the upcoming year. The budget allocation for these incentives reaches Rp374.5 trillion ($24 billion), marking the highest in the last 5 years.

Out of the total amount, Rp75.9 trillion ($4.86 billion) is earmarked to support micro, small, and medium enterprises (MSMEs or UMKM). Income tax exemption incentives will continue to apply in 2024 for individual MSMEs with annual turnover not exceeding Rp500 million ($32 thousand). For other MSMEs, a 0.5 percent tax rate incentive will remain applicable within the timeframe set by Government Regulation No. 55/2022. The specified durations are 7 years for individuals, 3 years for limited liability companies, and 4 years for other business entities, calculated from the registration date as taxpayers.

Furthermore, to address housing backlog issues, the government will bear the value-added tax on the purchase of houses with a selling price not exceeding Rp5 billion ($320 thousand). This incentive is effective from November 2023 to December 2024, in conjunction with the Ministry of Public Works and Public Housing's Cost Assistance Program targeting 282 thousand housing units.

The tax policy direction for 2024 promises significant changes. The Indonesian government is consistently striving to provide facilitation through administrative simplification and tax incentives. However, the success of implementing these policies heavily relies on active participation from taxpayers. With collective support, we can hope for a better taxation climate that strengthens the budget foundation for building a sustainable and inclusive economy.

*) 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 Kompas.com on December 12th, 2023.

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