Govt Urged to Reform RI’s Taxation to Maximize Development Funding

Originally posted online in the Jakarta Post:

The International NGO Forum on Indonesian Development (INFID) has said reforming Indonesia’s taxation system must be considered an urgent need as it would allow the government to optimally fund domestic development.

INFID program manager Siti Khoirun Nikmah said the government must consider that people’s taxes were the most important means of funding development in Indonesia, to get rid of the country’s dependency on the use of foreign funds and foreign debt to finance development projects.

“The tax potential we can allocate for development funding is large enough. However, it is compromised by an uneven tax system that doesn’t evenly tax the super-rich and allows illicit financial flows to happen,” Nikmah told The Jakarta Post at a press conference on Tuesday.

She further said illegal capital flows as a result of tax evasion in particular had cost Indonesia trillions of rupiah every year in potential development funds.

Indonesia ranks seventh among countries most negatively affected by the flight of funds to tax havens, with a proportion of about 25 percent of gross domestic product (GDP) in 2014.

“The illegal flight of capital to tax havens doesn’t only occur in Indonesia, but also in other developing countries, making it an international issue,” Nikmah said.

Her statements came one day before Jakarta hosts the Asia-Pacific High Level Consultation on Development Financing summit, which will take place on April 29 and April 30. The summit is seen as a “preparation” for the Financing for Development Conference in Addis Ababa, Ethiopia, in July.

INFID executive director Sugeng Bahagijo suggested five steps to help optimally reallocate taxes into development funding, including placing a higher tax rate on people who earn more than Rp 5 billion (US$384,246) a year.

“Another suggestion is to make sure all businesses pay their taxes according to how much they make, to fulfill the principle of fairness,” Sugeng told the Post.

On the international level, Sugeng suggested the UN form and lead a convention that handled taxation in which every single country had an equal say in decisions.

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