The “Indonesia Fiscal Reform Development Policy Loan” outlines critical reforms aimed at increasing Indonesia’s tax revenues, enhancing equity in its tax system, and strengthening fiscal institutions to improve budget management and intergovernmental fiscal transfers. This initiative is designed to expand fiscal space, address infrastructure and human capital gaps, and support Indonesia’s post-pandemic recovery.
Key Reforms and Objectives:
- Increasing Tax Revenue and Equity:
- Introduction of a carbon tax to incentivize low-emission production.
- Increase in VAT rates and the rationalization of exemptions to boost revenue collection.
- Revisions to the personal income tax system to enhance progressivity.
- Strengthening Fiscal Institutions:
- Integration of planning and budgeting to align expenditures with national development priorities.
- Reforms in intergovernmental fiscal transfers to improve the distribution of resources and incentivize performance at subnational levels.
- Addressing Climate Commitments:
- Support for Indonesia’s Nationally Determined Contributions (NDCs) through fiscal policies focused on emissions reductions and sustainable energy transitions.
- Development Outcomes:
- Expanded fiscal space for priority areas like health, education, and infrastructure.
- Enhanced fiscal sustainability and a reduction in inefficiencies in public expenditure.
Note on Leadership
This project was jointly led by Ralph Van Doorn, Arun Arya, and Jaffar Al-Rikabi, who served as Co-Task Team Leaders, under the guidance of the World Bank’s Macroeconomics, Trade, and Investment Global Practice and the Governance Global Practice teams.