JAKARTA: As inequality widens in Indonesia, the government is pushing for tax reforms to reduce the gap through coordination with other countries.
Finance Minister Sri Mulyani Indrawati said that one of the solutions to fight inequality was improving the government’s ability to maximize tax collection from taxpayers.
The country’s tax-to-gross domestic product (GDP) ratio now stands at below 11 percent, the lowest among its regional peers, despite it being the largest economy in Southeast Asia.
The government has previously attributed the low ratio to the fact that many taxpayers opt to hide their assets overseas in tax haven countries, such as Panama or the Cayman Islands.
Sri Mulyani said many other countries also fell victim to tax evasion practices and that they had decided to work together to prevent tax evasion.
“The solution is the Automatic Exchange of Information [AEoI]. If there are Indonesian taxpayers who want to open a financial account in other countries, we will have the ability to access information regarding this,” she said during the launch of a joint report on inequality by non-governmental organizations INFID and Oxfam.
The AEoI is endorsed by the Organization for Economic Cooperation and Development (OECD) and the G-20. It allows participating countries to exchange taxpayer information with each other.
The global policy has been agreed by 101 countries and will go into effect next year.
The government plans to maximize the data exchange to push for higher tax revenues, which it will use to fund various healthcare, education and other social security services, to reduce inequality as its end goal.
“We must ensure that there will be no more places for tax evaders to hide their assets,” the minister added.
