An Analysis of Personal Income Tax Compliance Rate in Indonesia For The Period 1996-2004

Friska Parulian Panjaitan

Economics and Finance in Indonesia, 2006, vol. 54, 344-376

Abstract: The Asian Financial crisis in 1998 has caused a significant budget burden for the Indonesian government. As a result, efforts to increase the revenue and the efficiency of expenditure have become an important issue for the government to guarantee fiscal sustainability. This research aims to analyze the existing income tax potential, review the current tax system in Indonesia, observes the source of problem, in order to recommend some alternative suggestion in order to increase the income tax revenue level in the future. The scope of income tax potential in this research covers only in the area of Personal Income Tax (PIT). Pareto distribution is used for estimating the potential income tax based on several scenarios. Next, the estimation results are compared to the actual tax revenue in order to know the size of Indonesian tax compliance rate for the year 1996, 2000 and 2002. Finally, as the conclusion, it can be strongly stated that the compliance rate of PIT in Indonesia is low, it only varies between 8%-18% in year 2002. Therefore, several efforts in the area of tax administration in order to catch the potential tax payers, and the sharpening of the definition of non-taxable income (including the agriculture income) are considered an important act in the future to improve the tax revenue performance.

Keywords: Tax; tax compliance; tax evasion (search for similar items in EconPapers)
JEL-codes: H24 H25 H62 (search for similar items in EconPapers)
Date: 2006
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