Compliance with the submission of individual tax reports has decreased. Does this condition have an impact on the decline in state tax revenue?
Lecturer at the Faculty of Economics and Business UGM, Rijadh Djatu Winardi, S.E., M.Sc., Ph.D., CFE, assessed that the decline in compliance with the 2024 mandatory Annual Tax Return (SPT) report by Individual Taxpayers (WPOP) does not necessarily reduce tax revenue.
“The decline in SPT reporting does not necessarily have a direct impact on the decline in tax revenue in the short term,” he explained recently.
Rijadh emphasized that the government measures tax revenue performance based on the total nominal tax collected, not the ratio of tax return filings to the overall WPOP population. He urged the government to treat the decline in tax return reporting as a warning sign, especially if the trend persists year after year, instead of linking it directly to the drop in tax revenue.
Balancing Factor
In practice, the lecturer at the Accounting Study Program of FEB UGM said that several balancing factors can still withstand the negative impact of the decline in tax return reporting. First, state revenue can still increase through the withholding tax system. When people earn more income, whether from salaries, deposit interest, or dividends, employers, banks, or relevant institutions deduct taxes directly. As people’s purchasing power increases, their spending also rises, which boosts government revenue from indirect taxes such as VAT and STLG. This impact will grow stronger as the VAT rate increases to 12% in 2025. In addition, robust economic growth and stronger corporate performance expand the corporate tax base, enabling corporate income tax revenue to compensate for the decline in revenue from individual taxpayers.
Data from the Directorate General of Taxes shows that by this year’s reporting deadline, annual tax returns reached 14,053,221, down 1.09% from last year’s 14,207,642. The decline occurred primarily among individual taxpayers, whose filings dropped by 1.21%, from 13,159,400 to 12,999,861. On the other hand, corporate taxpayers slightly increased their filings by 0.49%, from 1,048,242 to 1,053,360.
Causes of the Decline in Reporting
Rijadh said the decline in WPOP tax returns was due to several factors. One of them is the increasing number of employment terminations (PHK) or changes in employment status that make WPOP income no longer exceed non-taxable income (PTKP). On the other hand, technical disruptions in the DGT’s Coretax system that had occurred close to the filing deadline.
“Although the short-term impact on revenue may be manageable, the decline in tax return reporting compliance still carries serious long-term risks,” he said.
He explained that when individuals do not submit their tax returns, tax authorities struggle to detect underreporting and tax evasion, especially from income sources not subject to automatic withholding. This decline in compliance shifts revenue reliance solely to the formal sector. As a result, potential tax revenue may stagnate or even decline if economic growth shifts toward the informal sector, such as online or freelance businesses that operate without a taxpayer identification number (NPWP). Additionally, individuals who fail to report their taxes risk losing the right to file corrections or claim restitution for overpaid taxes, which could erode public trust in the tax system.
“Most worryingly, the decline in tax return reporting compliance can trigger a systemic erosion of the culture of tax compliance. If left unchecked, this could increase the shadow economy and erode the national tax base in the future,” he explained.
Riyadh further explained that a combination of behavioral, technical, and macroeconomic factors could cause a decline in compliance with WPOP’s annual tax return reporting. In terms of behavior, low tax morale due to negative perceptions of the effectiveness and transparency of tax funds, high psychological costs due to a system that is considered complicated, and limited understanding of the long-term benefits of reporting (bounded rationality), are dominant factors. Technically, the digitalization of the tax system that has not been inclusive, saturation in uploading documents (data fatigue), and disruption of the DGT Online system during the transition period to Coretax also complicate the reporting process. Regarding macroeconomics, economic pressure and changes in employment status, such as layoffs or income below PTKP, make some people feel they do not need to report.
Strategies to Improve Compliance
To address this decline, Rijadh said that the government can consider the typology of taxpayer motivation as proposed by Paleka & Vitezić (2023). Extrinsically motivated taxpayers can be improved through strengthening sanctions, intensifying audits, and simplifying the reporting system. Meanwhile, the morally committed group needs to be approached by building trust through transparency of tax use, value education, and increasing the credibility of tax institutions. For financially motivated taxpayers, concrete incentive strategies, fair rate reforms, and highlighting the direct benefits of tax payments are key. Meanwhile, socially committed groups will respond well to community-based campaigns, social participation, and collective narratives about tax benefits.
Riyadh said that the government could implement various strategic steps. One of them is using the principle of nudge theory in the reporting system, such as inserting social messages that encourage conformity, building tax awareness early on through education to create “tax citizenship,” and simplifying SPT reporting with a user experience (UX) based approach, such as a one-click filing system for permanent employees. It also integrates tax reporting with the digital economy ecosystem, such as e-commerce and ride-hailing applications, to reach informal economy actors. Applying the presumptive taxation model for the informal sector with simple administration, such as the 0.5% final rate for MSMEs, can also be an effective solution.
“In addition, providing incentives for timely reporters such as priority access to public services, administrative discounts, or accelerated restitution will effectively encourage compliance, especially from incentive-sensitive groups,” he concluded.
Report by: Orie Priscylla Mapeda Lumalan
Editor: Kurnia Ekaptiningrum
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