Tax Policies and Income Inequality in Indonesia
Introduction: Examining Tax Policies and Income Inequality
The issue of income inequality has been a topic of much debate in Indonesia. The tax system plays a crucial role in addressing income disparities, as it can be used to redistribute wealth from the wealthier to the poorer segments of the population. However, the current tax policies in Indonesia have been criticized for favoring the wealthy and burdening the lower-income groups. (Meiryani et al., 2022)
This research paper aims to analyze the relationship between tax policies and income inequality in Indonesia. It will examine the impact of tax incentives, such as non-taxable income, as well as the burden of indirect taxes on consumption, and how these policies affect the distribution of the tax burden across different income groups. (Huang, 1976) Indonesia's tax system has undergone various changes in recent years, with the government implementing a range of tax instruments, including income tax, value-added tax, and luxury sales tax. The government has been enforcing these tax instruments with the aim of increasing the people's purchasing power and stimulating economic growth.
To investigate this, the study will employ a multifaceted approach, drawing on both quantitative data, such as tax revenue statistics and income distribution figures, as well as qualitative insights from policy documents, academic literature, and stakeholder interviews.
Defining Income Inequality in Indonesia
Income inequality in Indonesia has been a longstanding issue. Studies have shown that the distribution of income in Indonesia is becoming increasingly unequal, with the gap between the wealthy and the poor widening. The importance of the tax system in addressing this inequality is often underestimated, as many studies have concluded that the tax burden in Indonesia is regressive or proportional, meaning that the tax burden falls disproportionately on the lower-income groups. (Huang, 1976)
Most studies conclude that taxes are regressive or proportional, with reliance on indirect taxes on consumption and the limited impact of income taxes used to explain these results. This suggests that the tax system in Indonesia may be exacerbating income inequality rather than addressing it.
The government has been enforcing various tax instruments, one of which is granting tax incentives. One such incentive is the adjustment of non-taxable income, which was aimed at increasing the people's purchasing power and stimulating economic growth.
However, the effectiveness of these tax policies in addressing income inequality remains a subject of debate.
To gain a deeper understanding of the relationship between tax policies and income inequality in Indonesia, this study will examine the distribution of the tax burden across different income groups, as well as the impact of specific tax instruments, such as non-taxable income and indirect taxes on consumption.
