The problem of gross receipts taxes in Indonesia: Economic distortions and policy options

This article examines the experience of Indonesia in adopting gross receipts taxes as one of the elements in the architecture of its tax system. Although Indonesian income tax law and value-added tax law do not explicitly impose gross receipts taxes, however, these laws authorize the use of presumptive taxation methods, which in practice are essentially gross receipts taxes. In the past three decades there have been expansions in the use of these presumptive methods in the tax system. As gross receipts tax is considered to be one of the most distortive tax systems, its expansions may also mean that its distortive effects may have expanded throughout the economy. Nevertheless, if well-designed and properly managed, gross receipts taxes might serve as an effective instrument to broadening the tax base particularly in countries with a significant presence of the informal sector, while still minimizing its adverse impacts on the economy.