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Tax office needs bigger resources to increase tax collection
While Indonesia has segmented its tax offices and embraced digital tools, the bureaucracy still lacks the agility to navigate the informal economy.
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A taxpayer takes a picture of the guideline for requesting online taxation services on Nov. 20, 2023, at a counter at the Kebayoran Baru 1 branch of the tax office in South Jakarta. (Kompas/Priyombodo)
F
or decades, the metaphor of “hunting animals in the zoo” has described how tax administrations primarily focused on collecting revenue from the formal sector, which employs only about one third of the total labor force.
In this analogy, governments target a small, easily accessible group, registered businesses, while leaving out vast segments of the economy, especially the informal sector.
In a zoo, animals are visible, contained and predictable. It is just like registered taxpayers in the formal sector, who are far easier to monitor and tax than those in the informal economy.
However, the government must venture beyond the zoo and into the jungle. That means working in the unregulated and often invisible areas of the economy.
In recent years, the tax authority has taken steps in this direction. It has established specialized offices for different taxpayer segments, expanded surveillance units and intensified efforts to identify unregistered businesses.
Taxpayer management has been segmented into large, medium and small offices to improve oversight and efficiency. Large and medium offices focus on strategic and high-value taxpayers, while small offices monitor and collect revenue from the informal sector.
This structure allows for targeted enforcement: Large, middle and strategic taxpayers get dedicated analysis, while the numerous small offices help expand coverage into the informal economy. Small tax offices now outnumber their larger counterparts, reflecting a growing focus on broadening the tax base.
