ADB strengthens Indonesia's tax system, supports fiscal sustainability
The Asian Development Bank (ADB) has approved a $500 million policy-based loan to strengthen Indonesia’s tax system modernization that will enhance tax collection efficiency, improve equity, and strengthen fiscal resilience to fund critical public services and long-term development goals, the press service of the Bank reports.
This marks the first of three subprograms under ADB’s Domestic Resource Mobilization (DRM) Program for Indonesia. The initiative will assist the country in strengthening its tax policy frameworks, boosting compliance, and reducing tax avoidance.
This program marks a pivotal moment in supporting Indonesia's fiscal sustainability agenda, said ADB Country Director for Indonesia Jiro Tominaga. "By modernizing tax administration through digitalization and strengthening international tax cooperation, Indonesia will be better positioned to finance its development priorities while maintaining macroeconomic stability."
ADB’s support will help integrate reforms aligned with the National Medium-Term Development Plan and will boost revenue generation through three key reform areas: enhancing tax administration efficiency, improving international tax cooperation, and advancing tax policies that support sustainable development. ADB estimates that this first subprogram will increase Indonesia’s tax-to-GDP ratio by 1.28 percentage points by 2030, creating vital fiscal space for growth and welfare-related investments. These reforms will also help accelerate Indonesia’s progress toward upper-middle-income status.
A key component is the operationalization of the Core Tax Administration System (Coretax) - Indonesia's new digital taxation platform. Coretax is expected to streamline administration processes, enhance services, improve data accuracy and granularity, and strengthen the Directorate General of Taxes’ capacity to detect and address non-compliance.
In addition, the program will bolster the agency’s ability to combat international tax avoidance, in line with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting - a global initiative ensuring that multinational corporations pay their fair share of taxes, especially in the countries where they actually do business and earn profits.
Reforms will reduce compliance costs for businesses in Indonesia by further streamlining processes for value-added tax refunds—an essential issue for small and medium-sized enterprises - by enhancing and expediting tax dispute resolution processes.
ADB is a leading multilateral development bank supporting inclusive, resilient, and sustainable growth across Asia and the Pacific. Working with its members and partners to solve complex challenges together, ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard our planet. Founded in 1966, ADB is owned by 69 members - 50 from the region.
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