Tax reform and fiscal sustainability :: A Comparative study between Indonesia and India

MAKSUM, Irfan, Prof. Makoto Kojima, Ph.D

2010 | Tesis | S2 Magister Ekonomika Pembangunan

Tax reform has become an important challenge in developing countries. Those in structure of taxation which are complex, inelastic, nefficient, inequitable, and unfair are common problems faced by developing countries. Those problems lead to the tax revenue deterioration and, furthermore, to the fiscal imbalance. Tax reform has become a key to the solutions. Many issues related to fiscal imbalance could be solving by the tax reform. Both Indonesia and India represent interesting cased studies related to tax reform. This study overview and compare the tax reform in Indonesia and India. This study also identifies the effects of tax reform on fiscal sustainability in Indonesia and India. The study found that tax reforms in Indonesia brought about positive impact to the overall fiscal adjustment in Indonesia. The government succeded in changing the structure of taxation and overall fiscal balance improved. Without the tax reforms, government revenue would have been flat over the periods and fiscal balance would have been unrealized. The improvement in the government’s fiscal balance was critical in helping Indonesia to attain more sustainable fiscal position. In the case of India, the tax reform mostly stressed on changing tax system and structure for the purpose of evercoming fiscal deficit. At the beginning, the tax reform did not seem bring about positive impact on the tax revenue collection and overall fiscal adjustment in India. The positive impact of the Indian tax reforrm can be seen after 2002/2003, when the new Task Force on tax reforms and Task Force on Implementation of Fiscal Responsibility and Budget Act, 2003 (FRBMA) were launched.

Kata Kunci : Tax reform, Fiscal sustainability, Comparative study