Indonesia's Tax Ratio Among the Lowest Compared to Other Countries in 2020

The Organisation for Economic Co-operation and Development (OECD) has revealed the tax-to-Gross Domestic Product (GDP) ratio for almost every country in the world. Indonesia ranks among the bottom three, with a low proportion.

Nauru holds the top spot with a 47.5% ratio. Nauru was once a very wealthy small nation, even having exempted its citizens from taxes.

Second is the average of the 38 OECD member countries, at 33.5%. New Zealand is third, with a 32.2% ratio.

Meanwhile, the average tax ratio for Asia-Pacific countries is 19.1%. Indonesia, in the bottom three, recorded a tax ratio of only 10.1%.

Below Indonesia are Bhutan (8.9%) and Laos (8.9%).

The OECD notes that Indonesia's tax ratio decreased by 1.5 percentage points, from 11.6% in 2019 to 10.1% in 2020. This is the lowest figure since 2007.

"From 2007 to 2020, Indonesia's tax ratio decreased by 2.1 percentage points, from 12.2% to 10.1%. The highest ratio during this period was 13% in 2008, and the lowest was 10.1% in 2020," the OECD wrote in its report.

According to *Klik Pajak*, the tax ratio is a tool to assess whether the amount of tax collected in a given period in a country is commensurate with its national income.

A narrow definition of the tax ratio includes Income Tax (PPh), Value Added Tax (PPN/PPnBM), Land and Building Tax (PBB), Customs and Excise duties, and other taxes. A broader version also includes the total value of non-tax state revenues (PNBP), natural resources (SDA) from oil and gas, and mineral and coal mining (minerba), against nominal GDP.

The OECD uses a broader tax ratio reference than usual, including social security contributions.

Several factors highlight the importance of the tax ratio for a country:

(a) It serves as an indicator of tax compliance in Indonesia. A low tax ratio percentage indicates that tax compliance is still low compared to other countries.

(b) A low tax ratio hinders the achievement of sustainable development.

(c) A tax ratio can create a fair tax system.

The following shows the tax-to-GDP ratio according to the OECD (2019-2020):

1. Nauru 47.5%
2. OECD** 33.5%
3. New Zealand 32.2%
4. Japan* 31.4%
5. Korea 28%
6. Australia* 27.7%
7. Samoa 25%
8. Vietnam 22.7%
9. LAC 21.9%
10. Mongolia 21.2%
11. Tokelau 20.8%
12. Cambodia 20.2%
13. China 20.1%
14. Cook Islands 19.7%
15. Asia-Pacific 19.1%
16. Maldives 19.1%
17. Solomon Islands 18.8%
18. Philippines 17.8%
19. Kyrgyzstan 17.4%
20. Africa (30)* 16.6%
21. Fiji 16.6%
22. Thailand 16.5%
23. Vanuatu 14.2%
24. Kazakhstan 14.1%
25. Singapore 12.8%
26. Papua New Guinea 11.6%
27. Malaysia 11.4%
28. Pakistan 10.4%
29. Bangladesh 10.2%
30. Indonesia 10.1%
31. Bhutan 8.9%
32. Laos 8.9%

*) Using 2019 data
**) 38 countries are members of the OECD