Reproducibility package for Estimating Value Added Tax (VAT) and Corporate Income Tax (CIT) Gaps in Indonesia

Despite their subdued collection efficiency, VAT and CIT are the main sources of government revenue in Indonesia. The sources of the forgone revenue in VAT and CIT remained largely unknown. This paper aims to close this knowledge gap. It finds that the gaps in VAT and CIT accounted for 6.4 percent of GDP on average between 2016 and 2021. Overall, non-compliance had a larger impact on the tax gap‒contributing to 58 percent of total forgone notional revenue from these tax instruments. The compliance gaps are very high compared to international peers. They have increased considerably in 2020, likely caused by the economic consequences of the COVID-19 pandemic, resulting in higher incentives to evade and defer tax payments. Despite some decline observed in 2021, the compliance gaps remained elevated compared to the pre-pandemic period. The policy gaps are relatively smaller but also contributed to significant revenue loss. The policy gaps have declined because of the deflation of nominal thresholds, reducing the scope of concessions in the VAT and CIT systems for small and medium-size companies