Description:
Indonesia suffers a serious problem from its underground, shadow economy. This hidden economy is estimated to make up approximately 24 percent of Indonesia’s gross domestic product (GDP), which potentially erodes tax revenue over IDR 205 trillion (USD 15 billion) annually. On the other hand, Indonesia faces a low tax to GDP ratio and a high level of non-compliance behavior. The tax ratio is in a range of 10 to 13 percent during 2008-2016, which is low compared to neighboring countries such as Singapore (13.8 percent), Malaysia (14.8 percent), and Thailand (15.6 percent). In addition, the income tax return filling compliance rate is estimated at only 60 percent. This master’s project is written to address the problems caused by the shadow economy and design tax strategies to improve compliance in Indonesia. The first and second chapter of the paper provide an initial description, identifying the need for analysis, plus the policy scope, the logic of the problem, the severity and prior efforts to solve this matter in Indonesia. Chapter three further illustrates the problem by offering problem analysis, an overview of stakeholders, and a diagnostic structure using two policy tools: quantitative and causal analysis. The objective of this chapter is to find the driver of Indonesia’s shadow economy using a regression model with a brief assessment of each possible causal factor. This quantitative analysis shows that six variables are statistically significant in the development of Indonesia’s shadow economy, namely, voice and accountability, rule of law, political stability, unemployment, financial innovation, and the development of the official economy. In addition, the author reviews five major causes which are a high tax burden level, a high cost of compliance, a low tax morale, a high unemployment, and an unstable official economy. In the fourth chapter, the author provides potential solutions from European Union and Australian Tax Office frameworks then provides four policy alternatives, which are, 1) the Status Quo; 2) the Deterrence Approach; 3) the Compliance Approach; and 4) a Strengthening Social Norms Approach. To choose the best alternative, the author measures seven different criteria: Cost Efficiency, Effectiveness, Social Acceptability, Financial Viability, Political Feasibility, Equity, and Time Frame. Based on this analysis, the author recommends implementing the combination of Deterrence and Compliance Approach while providing details of the possible constrains and consequences. Lastly, the author outlines an implementation plan and specifies a monitoring and evaluation review to ensure the policy execution achieves positive outcomes.

URL:
https://repository.icstiami.id/uploads/6._Theses_S2,_Nugraha,_Ryan.pdf

Type:

Document:

Date:
13-08-2018

Author: