Indonesia: Fiscal deficit expected to widen in 2019

• Tax collection in 2019, negatively affected by external pressures, was projected to be short of the target set in the 2019 state budget, contributing to a wider-than-expected fiscal deficit by the end of 2019, Finance Minister Sri Mulyani Indrawati said.
• The government projected its budget deficit to reach IDR310.8tr (USD22.28bn) in 2019, equal to 1.93% to GDP, slightly higher than the IDR296tr deficit targeted in the 2019 state budget, which would have been 1.84% of GDP.
• The Finance Ministry’s Taxation Director General Robert Pakpahan separately said the tax office was projected to only collect about IDR1.43qr in revenues in 2019, 91.1% of the IDR1.57qr target set in the 2019 budget.
• Robert said weak commodity prices, the rupiah’s stronger exchange rate compared to the macroeconomic assumption in the 2019 budget, a drop in imports and accelerated tax refund procedures have contributed to the lower revenues collected by the tax authority in 2019.
• Tax revenues, which also take into account revenues from customs and excise, was projected to reach IDR1.64qr in 2019, data from Finance Ministry revealed. They are about IDR143tr short of the IDR1.78qr targeted by the government in 2019’s budget.
• The corporate income tax — which, along with the value added tax (VAT), is the main revenue contributor — was booked at IDR123.97tr in 1H19, only growing by 3.4% y/y in 1H19, slower compared to the 23.8% y/y growth recorded over 1H18.
• Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for international relations Shinta Kamdani confirmed that there were indications of an economic slowdown as lingering uncertainties because of an ongoing trade spat between the United States and China drove down demand for exports and foreign investments.
• She added that domestic consumption, the primary driver of GDP growth in the country, was weaker than expected in 2Q19 and government spending was largely concentrated on sectors that were related to the elections.
• The sluggish tax revenue collection in 2019 also raised questions over the government’s plan to slash corporate income tax from 25% to 20% as such a move would lead to less tax collected by the government.

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