Understanding the Role of Tax Policies
Taxes are a crucial tool for governments to achieve various socio-economic objectives, including the redistribution of wealth and resources. In the case of Indonesia, the tax system plays a significant role in the country's overall fiscal policy, with taxes contributing a substantial portion of the government's total revenue.
According to data from the 2020 State Revenue and Expenditure Budget, Indonesia's state revenue is Rp. 2,233.2 trillion, with taxes contributing an income of Rp. 1,865.7 trillion (Meiryani et al., 2022). This highlights the importance of the tax system in Indonesia's economic and social policies.
The government has been implementing various tax instruments, such as income tax, value-added tax, and luxury sales tax, with the aim of increasing the people's purchasing power and stimulating economic growth. One of the key tax incentives introduced by the government is the adjustment of non-taxable income.
Evaluating Equity in Indonesia's Tax System
The data presented in the sources suggests that the tax system in Indonesia may be regressive or proportional, meaning that the tax burden falls disproportionately on the lower-income groups. This is a concerning finding, as it indicates that the tax system may be exacerbating income inequality rather than addressing it.
The sources highlight the importance of the tax system in effecting redistribution, with many economists believing that government price and tax policies discriminate against the relatively poorer rural sector in favor of the richer urban sector.
To evaluate the equity of Indonesia's tax system, this study will analyze the distribution of the tax burden across different income groups and sectors, including the urban and rural sectors.
The table above provides an illustrative example of the potential imbalances in the tax system, with the rakyat kecil (lower-income group) bearing a heavier tax burden compared to the rakyat kaya (higher-income group). This analysis will be crucial in understanding the role of the tax system in addressing income inequality in Indonesia and informing policymakers on potential reforms to promote a more equitable distribution of the tax burden.
This research paper has examined the complex relationship between tax policies and income inequality in Indonesia, highlighting the need for a more nuanced understanding of the impacts of specific tax instruments and incentives. The findings suggest that the current tax system may be exacerbating inequality, with the tax burden falling disproportionately on the lower-income groups.
To address this issue, the study recommends that policymakers in Indonesia undertake a comprehensive review of the tax system, focusing on the distribution of the tax burden across different income groups and sectors. Additionally, the government should consider implementing more progressive tax policies, such as increasing the tax rates for the wealthier individuals and corporations, while providing targeted tax relief or incentives for the lower-income groups. (Meiryani et al., 2022) (Huang, 1976)
