Strategy to Increase Tax Revenue to Capture Digital Economy Growth Opportunities in Indonesia

Abstract

The digital economy in Indonesia is a rapidly growing sector with the potential to become a major player in Southeast Asia. This growth is driven by widespread internet penetration, rapid technology adoption, and an increasing number of digital users. However, to maximize this potential, Indonesia must develop effective strategies to increase tax revenue from the digital economy. Tax revenue from the digital economy is crucial given its growing contribution to Indonesia's GDP. By 2024, the digital economy is expected to contribute 4.66% to the GDP and create 3.7 million additional jobs by 2025. Effective taxation strategies will boost state revenue and support sustainable economic growth. Experiences from other countries highlight various approaches to optimizing tax revenue from the digital sector. Some countries have introduced digital services taxes and global minimum taxes to regulate digital business models. For instance, France and the UK have implemented digital services taxes to capture revenue from large tech companies operating without significant physical presence. These approaches can serve as references for Indonesia in designing local tax policies. Expanding the VAT base to include digital services and products has proven effective in other countries. In Indonesia, tax revenue from the digital economy reached IDR 24.99 trillion by May 2024, with the largest contribution from VAT on electronic commerce. This indicates that expanding the VAT base can be an effective strategy for increasing tax revenue from the digital sector.