Indonesia Economy

Indonesia Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

Despite the ongoing economic recovery after the COVID-19 pandemic, the Ministry of Finance of Indonesia has reported the highest ever tax revenue in the last 12 years, including almost 22% higher tax revenue than in 2020. Moreover, according to surveys by consulting firms, Indonesian entrepreneurs are looking ahead to next year with optimism, and expect up to 90% higher profits than in 2021. Compared to their counterparts from the other 28 Asian countries, they are significantly more optimistic. Despite the Covid-19, Indonesia has seen significant success in international trade, reaching its highest ever net export income since 2007. According to the BPS, Indonesia’s exports reached almost 232 M USD compared to imports of almost 197 M USD. However, Indonesia owes this historical milestone not to a progressive trade policy, but rather to commodity prices on international markets. Indonesia’s exports have traditionally been dominated by raw materials, followed by oil and natural gas, followed by processing and agricultural products. The increase in imports by 38.5% is attributed to the ongoing economic recovery as a result of the relaxation of hygiene measures, when domestic demand formed by both households and industrialists was reset. The gradual return to daily business in the case of most of the world’s economies then helped Indonesian exports to a historic jump, which is expected to moderate in the first months of 2022 due to the saturation of supply chains, and the restoration of economic growth will again be driven by consumption, and GDP growth will thus reach around 5% ( i.e. almost the average economic growth of Southeast Asian economies – 5.2%). However, the seemingly high pace is not enough to meet President Jokowi’s Vision 2045 strategic plan for economic growth, which aims to achieve growth of 7%. Jokowi’s mandate is still primarily oriented towards economic results, with democracy remaining more of a tool to achieve these goals. Foreign policy remains predominantly mercantilist, while regulatory reforms are centered around the gradually introduced Omnibus Law on Job Creation and the harmonization of progressive taxation. The construction of the capital city in East Kalimantan and the strengthening of infrastructure remain important development topics (in 2022 another 79 infrastructure projects worth up to 90 billion USD, see MOP). Check ebizdir for economical facts of Indonesia.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 5 -2.2 3.7 5.1 4.9
GDP/population (USD/PPP) 12,583.20 12,348.80 13,101.30 14,230.00 15 180.0
Inflation (%) 2.8 2 1.6 3.6 3.2
Unemployment (%) 5.2 7.1 6.5 6.1 5.6
Export of goods (billion USD) 167.7 163.3 231.5 249.4 247.5
Import of goods (billion USD) 171.3 141.6 196.2 216.6 223.1
Trade Balance (Billion USD) 3.5 28.3 43.8 42.2 34
Industrial production (% change) 4 -6.5 4 6.4 5.8
Population (millions) 265.3 267.5 269.8 272 274.2
Competitiveness 32/63 40/63 37/64 ON ON
OECD export risk 03.VII 03.VII 03.VII ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -6
Public debt (% of GDP) 48
Current account balance (billion USD) 3.3
Taxes 2022

Indonesia’s 2022 state budget is driven by increasing tax revenue and the long-announced introduction of a carbon tax. With an unusually fast legislative process, it seems as if the government is trying to avoid a critical response from the public. This, however, came to a lesser extent from households, whose purchasing power will be significantly reduced, as well as their consumption, which contributes greatly to the growth of the Indonesian economy, and from businesses, which were promised a corporate tax cut in last year’s Covid-19 program the next two years. Even under the influence of the active vaccination campaign, the overall outlook is positive. With regard to the ongoing pandemic, the course of which pointed to insufficient capacities of the health system, the budget of the Ministry of Health was strengthened. With regard to the geopolitical context, there is a renewed increase in the defense budget, which thus remains the second largest among ASEAN countries. The Indonesian House of Representatives (DPR) officially ratified the 2022 State Budget Bill during a plenary session on September 30. Government revenue is targeted at IDR 1,846.14 trillion (€109.1 billion) and government spending at IDR 2,714.16 trillion (€160.4 billion). The deficit therefore amounts to IDR 868 trillion (€5billion) or 4.85% of GDP. It will be the last period before the deficit is reduced to a maximum of 3% of GDP in 2023. Economic growth is expected at 5.2%, a slight change from the original proposal of 5-5.5%. Inflation will be kept at 3%. The budget is based on several macroeconomic assumptions. The Indonesian rupiah is expected to hover around IDR 14,350/USD and the interest rate on the ten-year national debt is estimated at 6.8%. Furthermore, it is expected that the price of oil will hover around USD 63/barrel. Oil and gas production is estimated at 703,000 barrels and 1,036,000 barrels of oil equivalent per day. The DPR also agreed on several development goals, which have not changed compared to the Government’s Action Plan 2022 (RKP). This includes an unemployment rate of – 6.3% and a poverty rate of 8.5-9.0% and inequality (Gini index) in the range of 0.376 – 0.378 (compare the Czech Republic – 0.247). The World Bank cut its forecast for Indonesia’s medium-term economic growth this year to 3.7% from an April forecast of 4.4%, citing a recent surge in Delta cases. However, the outlook for 2022 has slightly improved and is in line with the Indonesian government’s forecasts. According to the World Bank’s Chief Economist for East Asia and the Pacific Aaditya Mattoo, the vaccination program is key to economic recovery not only in Indonesia, but also in other countries of Southeast Asia and the Pacific region. In the next few months, many countries including Indonesia and the Philippines will reach 60% of the population. Indonesia is likely to meet this target in the first half of 2022. Growth could increase by as much as 4.5-5% over the next few years, assuming a successful vaccination campaign and the introduction of other supportive macroeconomic instruments and reforms.

Banking system

State banks, domestic private banks and branches of foreign banks operate on the banking market. Recently, interest in so-called Sharia banks has been increasing. The four largest state banks are Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia, and BTPN. There are 122 private banks operating in the country, and there are also a large number (more than 1,500) of so-called rural banks. At the same time, the four largest banking institutions hold 45% of the entire market. Among the private banks, the largest is BCA – Bank of Central Asia. Supervision of financial institutions, including banks, is subject to OJK (Otoritas Jasa Keuangan / Finacial Services Authority). Payment transactions and especially foreign payment transactions under the supervision of the independent central bank Bank of Indonesia.

Structure of the banking sector : State banks 4; Regional Development Banks 26; Private Indonesian banks (forex) 34; Private Indonesian banks (non-forex) 32; Banks with foreign participation (joint-ventures) 16; Foreign banks 10.

Major Indonesian and foreign banks in the country :

Indonesian Banks: 1. Bank Central Asia Tbk 2. Bank Mandiri 3. Bank Danamon Indonesia Tbk 4. Bank Panin Tbk 5. Bank Lippo Tbk 6. Bank Negara Indonesia Tbk 7. Bank Niagara Tbk 8. Bank Rakyat Indonesia

Foreign banks: 1. Bank of Tokyo-Mitsubishi, 2. Citibank NA, 3. Deutche Bank, 4. ABN AMRO Bank, 5. Bank Societe Generale Indonesia, 6. HSBC, 7. JP Morgan Chase Bank, 8. Standard Chartered Bank

Tax system

On the one hand, Indonesia’s budget is under constant pressure and tax increases are necessary for the government to secure the revenue needed to build infrastructure and increase economic dynamism. On the other hand, there is the fact that local voters are very sensitive to the rise in prices of basic commodities, which are necessarily affected by tax increases. Another major problem lies in the insufficient provision of tax collection. According to estimates, roughly half of Indonesians do not properly fulfill their tax obligations to the full extent. The ratio of tax revenue to total GDP in Indonesia is only approx. 11% (the average of OECD countries is 33.8% of GDP), which places the country in the world ranking among a group of states such as Ethiopia, Madagascar, or Sierra Leone. At least a slight increase was therefore expected, and desirable. Households will bear the brunt of the VAT increase and the question is,

The Indonesian state monitors financial flows, where an amount above IDR 100M in any currency is subject to special controls at the borders, and in the case of international non-cash transactions in both directions in volume above USD 100,000, it requires permission from the Central Bank of Indonesia.

Corporate tax including capital gains is 22%.

Taxation of natural persons is progressive according to the income groups below:

Up to IDR 60M at 5%

IDR 60M to IDR 250M at 15%

IDR 250M to IDR 500M at 25%

IDR 500M to IDR 5B at 35%

Capital gains from 0.1% to 35%

The VAT rate is set at 11% (from 4/2022).

The tax liability varies according to the (non)resident’s status, which is defined by the number of 183 consecutive days spent in the territory, regardless of citizenship.

The government will also introduce a carbon emissions trading system from April 2022. For now, the minimum rate per metric ton of CO2 has been halved to $2.1, which will be fixed even if the market price falls, and will be significantly applied to coal-fired power plants between 2022 and 2025. The Indonesian government thus continues to strive to fulfill the goals of its Carbon Roadmap and the so-called Nationally Determined Contributions to Climate Change, which states a reduction of carbon emissions by 29% in the 2030 horizon, then by a full 41% with the contribution of the international community.

Additional tax obligations are clearly available in the Deloitte-Tax publication.

Indonesia Economy