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Facing Tax Deficit, Government Prioritizes Capital Repatriation and DJP Quality Reform

Taxindo Prime Consulting
Tuesday, September 23, 2025 | 11:03 WIB
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Facing Tax Deficit, Government Prioritizes Capital Repatriation and DJP Quality Reform
Indonesia’s tax revenue performance is facing serious challenges, prompting the Minister of Finance to reaffirm a fiscal policy direction that prioritizes compliance enforcement and capital repatriation incentives, rather than another tax amnesty.

As of August 2025, Indonesia’s tax revenue showed a significant shortfall, falling Rp94.15 trillion below the state budget (APBN) target. This gap was largely driven by a 51% decline in collections from Corporate Income Tax (CIT) and Value Added Tax (VAT), signaling a slowdown in corporate activity and consumption.

In response, Finance Minister Purbaya Yudhi Sadewa firmly rejected the proposed third round of Tax Amnesty, choosing instead to pursue a different strategy: encouraging the repatriation of Indonesian citizens’ (WNI) offshore dollars through targeted incentives. This approach is expected to strengthen foreign exchange reserves while maintaining the principle of tax compliance.

Although tax disputes have gradually declined, the majority of Tax Assessment Letters (SKP) issued by the Directorate General of Taxes (DJP) continue to be overturned or annulled in court. This underscores the urgent need to improve the quality of tax audits and assessments conducted by the DJP.

The government is also placing greater emphasis on fiscal equity at the regional level. Starting in 2026, a new revenue-sharing scheme (Dana Bagi Hasil/DBH) for employee income taxes will be introduced, whereby tax allocations will be distributed based on employees’ place of residence rather than company headquarters. The reform aims to ensure fairer distribution of tax revenues across regions.

Implications
The current situation highlights a sharp contrast between declining tax revenues and the government’s decisive steps to shape long-term strategy. The steep drop in collections from Corporate Income Tax and VAT has pushed the government to pursue more stable funding sources. By rejecting the Tax Amnesty proposal, the government has made clear its commitment to compliance and rule of law. At the same time, proactive measures such as dollar repatriation incentives and the DBH reform are being advanced to strengthen fiscal fairness at the regional level.

Conclusion
The downturn in tax performance underscores the need for fundamental improvements in Indonesia’s tax system, particularly regarding the quality of assessments frequently overturned in court. The government’s success will largely depend on its ability to attract foreign capital through repatriation incentives and to implement structural reforms—such as the new DBH scheme—to safeguard fiscal stability amid ongoing economic challenges.



Sources

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