Indonesia's VAT Collection Efficiency Hits Post-Pandemic Low

Declining VAT Gross Collection Ratio Raises Concerns

Indonesia's Value-Added Tax (VAT) collection efficiency has reached a post-pandemic low, with the VAT Gross Collection ratio dropping to 45.2% in Q3 2023. This decline represents a significant drop from the 61% recorded in Q3 2022 and continues the downward trend observed through 55.7% in Q3 2024.

Historical Context and Current Implications

The VAT Gross Collection ratio, which measures the effectiveness of tax collection relative to consumption, has shown a concerning trend. After recovering to 61% in Q3 2022 from 46.2% in 2021, the ratio has consistently declined. This weakening collection efficiency poses challenges for Indonesia's fiscal sustainability and tax revenue projections.

Challenges and Potential Impact

The declining VAT collection efficiency indicates potential issues with tax administration and compliance. As consumption remains relatively stable, the drop suggests problems in the tax collection mechanism rather than reduced economic activity. This situation may require policy review and potential reforms to improve tax collection effectiveness and maintain fiscal health.