Can Fiscal Transformation Address Emerging Social Phenomena?

By: Ika Hapsari, staff of Directorate General of Taxes

Two expressions "In this economy" and #kaburajadulu (“just escape first”) have recently gained traction among Indonesian netizens. Beneath the humor and satire embedded in these trending phrases lies a deep socio-economic paradox worthy of closer examination.

The phrase “In this economy” refers to the creative survival strategies individuals adopt amid uncertain economic conditions. Often used as a preamble to frugal living tips, it reflects the normalization of austerity. For example: “In this economy, bringing your own lunch should be normalized instead of buying overpriced trendy food.”

Meanwhile, the hashtag #kaburajadulu reflects a form of escapist hope among the younger generation, an imagined utopia abroad where opportunities seem more abundant. This sentiment serves as a social critique of the domestic labor market, which struggles with limited job availability and rising layoffs. As a result, educated and productive young citizens are increasingly considering migration in pursuit of better futures overseas.

These expressions underscore not only economic issues but also sociological ones—touching on the distribution of opportunities, access to resources, and the public’s sense of justice. Their viral spread is a red flag for policymakers, especially those shaping fiscal strategies. Thus, Indonesia needs fiscal policies that are not only accountable but also equitable and impactful to eradicate the issues.

Fiscal Policy: Between Numbers and Social Justice

From a fiscal standpoint, taxation and the state budget (APBN) are powerful instruments for promoting equitable welfare distribution. Income redistribution is a cornerstone of social justice, enshrined in Articles 23A and 33 of the 1945 Constitution.

Under Indonesia’s progressive income tax regime, as stipulated in Law No. 7/1983 (last amended by Law No. 6/2023 on the ratification of the Omnibus Law), higher income earners are taxed at increasingly higher rates. For instance, individuals earning more than IDR 5 billion per year face a top marginal tax rate of 35%. However, the contribution of high-income earners (High Wealth Individuals) to overall tax revenue remains disproportionately low.

According to the Ministry of Finance’s Fiscal Economic Outlook (2024), Indonesia's tax-to-GDP ratio stands at 10.2%, significantly below the OECD average of 33.6%. This indicates an underperforming tax system, particularly among the high-net-worth segment. Furthermore, structural challenges persist within Indonesia’s self-assessment tax system, including low compliance among the wealthy. The Global Wealth Report 2023 reveals that the top 1% in Indonesia control nearly 45% of the nation’s total wealth.

Simultaneously, enhancing compliance and broadening the tax base within the digital economy must be accelerated. Digital transactions involving online sellers, influencers, affiliate marketers, and freelancers have surged. According to We Are Social (2023), Indonesia is among the world’s largest digital markets, with e-commerce transactions projected to exceed USD 60 billion in 2024. Yet, Directorate General of Taxes (DGT) data (2023) shows that out of eight million online marketplace sellers, only six hundred thousand possess a registered Tax Identification Number (NPWP).

In contrast, middle-class employees in the formal sector are taxed automatically via payroll (Article 21 Income Tax). This creates an asymmetry in tax burdens: salaried workers pay consistently, while many digital entrepreneurs rely solely on self-reporting. This imbalance may deepen perceptions of fiscal injustice, especially when high-earning individuals in the informal digital sector are seen as evading collective responsibility. From a sociological perspective, such inequities erode not only tax morale but also the legitimacy of the state.

In this context, the DGT must accelerate its five-pillar tax reform: covering organizational capacity, human resources, IT and data base, business processes, and regulation. The Coretax Administration System, a key initiative within the IT pillar, will be crucial in closing tax compliance gaps and building a culture of sustained collective compliance.

Redistribution and Fair Taxation: A Social Imperative

Fiscal policy can no longer be judged solely by budget ratios and figures. It must be assessed based on its ability to restore public trust and affirm the state’s presence across all layers of society. Taxation and government spending must function as bridges that connect citizens with the nation.

Redistribution of income involves channeling wealth from affluent groups to those who are economically vulnerable, through a combination of fair taxation and targeted social spending. When people's purchasing power is supported by equitable taxation and well-targeted subsidies, and when the state budget is allocated toward productive sectors, the labor-intensive industries may recover without resorting to layoffs.

Government spending should prioritize high-multiplier sectors such as basic infrastructure, digital transformation, food security, and essential social services. Adaptive social protection systems must also be strengthened to respond to crises such as mass layoffs or economic shocks.

Inclusive growth cannot rely on GDP expansion alone. It requires a fair distribution of benefits and a shared sense of belonging in the economic system. Taxation and public expenditure are not merely macroeconomic instruments. They are expressions of our national commitment to solidarity and social justice.

It is time for taxes to be levied not just by legal authority, but with moral legitimacy. Likewise, the state budget must not only fund physical development but also rebuild the social trust that holds this nation together.

Fiscal transformation through sustainable and inclusive tax reform plays a central role in addressing the social phenomena that challenge our society today. Expanding the tax base, improving compliance, and building a fairer system are essential for inclusive development financing. Taxation must evolve from a mere revenue tool into an effective instrument of welfare distribution.

In doing so, fiscal transformation proves itself not just as an economic agenda, but as a tangible solution to societal inequalities and a pillar of just and equitable development.

*)This article reflects the personal views of the author and does not represent the official position of the institution with which the author is affiliated.

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