Indonesia is preparing a major tax enforcement shift aimed at curbing the shadow economy—unregistered, high-value business activity that escapes formal taxation. With a 2026 revenue target of Rp2,357.71 trillion, the government plans to expand its tax base without increasing rates. This marks a strategic pivot toward fairness, digital integration, and fiscal sustainability.
Key Facts & Background
- Definition & Scope:
The Directorate General of Taxes (DJP) defines the shadow economy as high-value economic activity that remains outside the formal tax system. It includes unregistered businesses with annual turnover above Rp500 million, undeclared high-value trade, and large sectors not yet integrated into tax administration. - Policy Framework:
- The strategy is outlined in the 2026 Financial Note and Draft State Budget (RAPBN).
- Target sectors: retail trade, food and beverage, gold trading, and fisheries.
- No increase in tax rates; focus is on expanding compliance and coverage.
- Strategic Measures:
- Integration of National Identity Number (NIK) with Taxpayer Identification Number (NPWP).
- Launch of Core Tax Administration System (CTAS) on January 1, 2025.
- Active canvassing to identify unregistered taxpayers.
- Data matching from OSS BKPM and digital platforms.
- Appointment of foreign entities to collect VAT on cross-border digital transactions.
- Ministerial Statement:
Finance Minister Sri Mulyani emphasized the need to address shadow economy and illegal activity to meet revenue goals without burdening compliant taxpayers.Strategic Insights
Indonesia’s crackdown on the shadow economy represents a structural shift in its fiscal strategy—one that prioritizes equity, digital modernization, and long-term revenue resilience. By focusing on sectors with high informal activity, the government aims to close loopholes that undermine tax fairness and distort market competition.
The decision to avoid raising tax rates while pursuing Rp2.3 trillion in revenue reflects a nuanced approach to fiscal policy. Rather than penalizing compliant taxpayers, the government is expanding its reach to previously untapped segments. This aligns with global best practices in tax administration, where broadening the base is often more effective than increasing rates.
Digital integration is central to this reform. The rollout of CTAS and NIK-NPWP linkage enables real-time data tracking, risk profiling, and automated enforcement. These tools not only improve compliance but also reduce administrative burdens, making it easier for businesses—especially SMEs—to enter the formal system.
The inclusion of foreign VAT collectors for digital transactions signals Indonesia’s intent to regulate the digital economy with parity. As e-commerce and cross-border services grow, ensuring tax compliance in these areas is critical to maintaining fiscal sovereignty.
However, the success of this initiative depends on execution. Identifying and formalizing shadow economy actors requires sensitive outreach, robust data governance, and inter-agency coordination. The government must balance enforcement with incentives—offering legal protection, financing access, and simplified registration to encourage voluntary compliance.
In the long term, formalizing the shadow economy could unlock significant economic benefits. It would improve labor protections, enhance access to credit, and create more reliable economic data for policymaking. For Indonesia, this is not just a tax reform—it’s a step toward inclusive growth and institutional maturity.