Indonesia’s budget deficit predicted to widen to 2.8 percent

VNA 10/02/2020 08:18

Indonesia’s 2020 state budget deficit is likely to further increase to 2.8 percent of the country’s gross domestic product (GDP), much higher than the government’s target, as tax reforms would result in lower revenue collection, according to local economists.

The tax office collected 1.33 quadrillion Rp in tax revenue last year, 84.4 percent of the full-year target, causing a shortfall of 245.5 trillion Rp, the worst in at least the last five years. (Source: https://www.thejakartapost.com/)

Economist Tauhid Ahmad from the Institute for Development of Economics and Finance (Indef) said the budget deficit may reach 486 trillion Rp (US$35.5 billion) this year, compared with the government’s target of 307.2 trillion Rp, which represents 1.76 percent of GDP.

The Indonesian government is being too optimistic because the tax revenue growth assumption of 13 percent is too high considering realized tax revenue grew by only 8 to 9 percent each year, he said.

The state budget deficit in 2019 totalled 2.2 percent of GDP, higher than the government’s 1.8-percent target because of a revenue shortfall of about 207.9 trillion Rp.

Indonesian Finance Minister Sri Mulyani Indrawati said on February 5 that the sweeping tax reforms through the omnibus bill, which is to reduce corporate income taxes and make internet giants pay taxes, would await approval by the House of Representatives before full implementation.

Previously, she announced that the government would reduce corporate income tax from the current 25 percent to 22 percent in 2021 and then to 20 percent in 2023.