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Indonesia Economic Prospects, December 2024: Funding Indonesia’s Vision 2045

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dc.contributor.authorWorld Bank
dc.date.accessioned2024-12-19T15:17:29Z
dc.date.available2024-12-19T15:17:29Z
dc.date.issued2024-12-19
dc.description.abstractIndonesia’s economy remains resilient, buoyed by strong domestic demand and a recovering service sector. The current account deficit widened, driven by moderating terms of trade and cyclical factors that intensified services and income outflows. After two years of consolidation, the fiscal policy stance loosened slightly. Meanwhile, Bank Indonesia (BI) has been incrementally easing its policy stance while managing currency stability. Indonesia needs to significantly increase tax revenues to investment in human and physical capital to achieve its high-income status ambitions. The country’s public capital stock lag regional and structural peers, falling far short of advanced economies. Closing these gaps could enhance productivity growth and support the sustained 6 percent growth required to reach high-income status by 2045. However, the investment needed is substantial. A significant portion of this must be financed through increased tax revenues, as a substantial rise in debt would be risky and would violate statutory caps on deficit and debt levels. Overall, increasing tax revenues will require reforms that widen the tax base, improve tax administration, and address structural constraints to compliance. Reforms to widen the tax base could lower the registration threshold for VAT to align with middle-income country norms, which also applies to the temporary final tax for MSMEs. Meanwhile, a permanent final tax regime could be introduced for MSMEs below the threshold. Special CIT treatments, such as for construction services, publicly listed firms, and non-standard VAT exemptions, may be phased out gradually. Tax incentives need to become more strategic, time-bound, and systematically reviewed. Improving compliance requires better risk management, using high-quality third-party data and integrating fragmented government systems. Simplifying and clarifying VAT regulations can reduce disputes and administrative burdens. Lastly, addressing structural constraints involves deepening financial sector depth, which is expected to have the secondary effect of facilitating compliance through improved information and formalization.en
dc.identifierhttp://documents.worldbank.org/curated/en/099121324112039917/P506982162d54c07e1be701512b853ab1d1
dc.identifier.doi10.1596/42561
dc.identifier.urihttps://hdl.handle.net/10986/42561
dc.languageEnglish
dc.language.isoen_US
dc.publisherWashington, DC: World Bank
dc.rightsCC BY-NC 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttps://creativecommons.org/licenses/by-nc/3.0/igo
dc.subjectECONOMIC GROWTH
dc.subjectFISCAL POLICIES
dc.subjectINVESTMENT CLIMATE
dc.subjectTAXATION
dc.titleIndonesia Economic Prospects, December 2024en
dc.title.subtitleFunding Indonesia’s Vision 2045en
dc.typeReport
dspace.entity.typePublication
okr.date.disclosure2024-12-19
okr.date.doiregistration2025-04-14T11:51:43.167902Z
okr.date.lastmodified2024-12-15T00:00:00Zen
okr.doctypeEconomic & Sector Work::Economic Updates and Modeling
okr.doctypeEconomic & Sector Work
okr.docurlhttp://documents.worldbank.org/curated/en/099121324112039917/P506982162d54c07e1be701512b853ab1d1
okr.guid099121324112039917
okr.identifier.docmidP506982-62d54c56-47fc-497e-be70-512b853ab1d1
okr.identifier.externaldocumentum34436502
okr.identifier.internaldocumentum34436502
okr.identifier.report195622
okr.import.id6096
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099121324112039917/pdf/P506982162d54c07e1be701512b853ab1d1.pdfen
okr.region.administrativeEast Asia and Pacific
okr.region.countryIndonesia
okr.topicMacroeconomics and Economic Growth::Taxation & Subsidies
okr.topicMacroeconomics and Economic Growth::Fiscal & Monetary Policy
okr.topicSocial Protections and Labor::Labor Markets
okr.topicMacroeconomics and Economic Growth::Economic Growth
okr.topicPoverty Reduction::Employment and Shared Growth
okr.topicPoverty Reduction::Poverty Diagnostics
okr.unitEFI-EAP-MTI-MacroFiscal-2 (EEAM2)
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