The Asian Development Bank (ADB) has approved a $500 million policy-based loan to support Indonesia’s efforts to modernize its tax system. This initiative aims to improve tax collection efficiency, enhance equity, and strengthen fiscal resilience to better fund public services and long-term development goals. It is the first of three subprograms under ADB’s Domestic Resource Mobilization (DRM) Program for Indonesia, designed to improve tax policy frameworks, increase compliance, and curb tax avoidance.
According to ADB Country Director for Indonesia Jiro Tominaga, the program represents a pivotal step in advancing the country’s fiscal sustainability agenda. By embracing digitalization and reinforcing international tax cooperation, Indonesia will be better equipped to finance its development priorities while safeguarding macroeconomic stability. The reforms align with the National Medium-Term Development Plan and target three key areas: enhancing tax administration efficiency, strengthening international tax cooperation, and advancing policies that support sustainable development. ADB projects that these measures will raise Indonesia’s tax-to-GDP ratio by 1.28 percentage points by 2030, creating fiscal space for growth and welfare investments, while helping the nation progress toward upper-middle-income status.
A major element of the program is the implementation of the Core Tax Administration System (Coretax), a digital platform set to streamline administrative processes, improve services, and boost data accuracy. Coretax will also enhance the Directorate General of Taxes’ capacity to detect non-compliance and improve enforcement. Furthermore, the initiative will reinforce Indonesia’s commitment to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, ensuring multinational corporations pay taxes where they conduct business and generate profits.
Additional reforms will reduce compliance costs for businesses, particularly small and medium-sized enterprises, by simplifying value-added tax refund procedures and expediting tax dispute resolution. Through these measures, ADB aims to help Indonesia build a fairer, more efficient, and more resilient tax system that supports sustainable economic growth. As one of the region’s leading multilateral development banks, ADB continues to work with partners across Asia and the Pacific to deliver innovative solutions, quality infrastructure, and strategies that promote inclusive and sustainable development.
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