Examining the economic and non-economic fators on tax revenue in Indonesia

Abstract

Taxes are sometimes undermined by limitations on tax revenue measurement, despite the widespread consensus that taxes are typically a good policy instrument for evaluating the macroeconomic impact of the country's different tax policies. According to the Ministry of Finance, Indonesia's tax ratio has experienced volatile fluctuations over the past five years, and it is the third lowest of all ASEAN countries. This phenomenon can negatively impact tax revenue if not appropriately addressed by the government. This study considers various economic and non-economic indicators to assess the tax revenue. Inflation and unemployment are analyzed economically, while non-economic factors are trust and tax education. Investigating the relationship between these independent variables and tax revenue employs Panel Data Regression. The data utilized in this study were from the Directorate General of Taxes and the Central Bureau of Statistics (Badan Pusat Statistik/BPS) from 2015 to 2022. The analysis encompasses 34 provinces within Indonesia. The results of the Panel Data Regression indicate that inflation, tax education, and trust exhibit significant positive effects on tax revenue. In contrast, unemployment has an inverse impact on tax revenue. These findings offer valuable insights and recommendations to the government. The government should take a more proactive stance in managing inflation rates and addressing tax education. Tax revenue can be improved by effectively controlling one or more variables, thereby increasing tax revenue.