Single A Credit Rating

notarisdanppat.com – Indonesia’s Ambition to Improve Tax Ratio to Get Single A Credit Rating , The Indonesian government needs to make more efforts to increase the tax ratio. This effort aims not only to increase state revenue but also to achieve a Single A credit rating. Myrdal Gunarto, staff of Economy, Industry and Global Markets at Maybank Indonesia, stated that Indonesia needs a tax ratio of around 13% of Gross Domestic Product (GDP) for the country’s credit rating to rise to Single A. A tax ratio of 13 per cent is considered capable of gradually increasing the country’s fiscal capacity.

What is Country Credit Rating?

A Single A country credit rating is one of the categories in the credit rating system assigned by international credit rating agencies such as Standard & Poor’s (S&P), Moody’s and Fitch Ratings. This rating is used to assess a country’s credit risk, which is the likelihood of the country defaulting on its debts or obligations. It can be said that Single A sovereign credit is a fairly high rating, but it is in the middle of the pack. Here are some other ratings.

  1. AAA: The highest rating, indicating a very strong ability to fulfil financial obligations.
  2. AA: Highly rated, but slightly more vulnerable to changes in economic conditions.
  3. A: Strong ability to meet financial obligations, but more vulnerable to adverse economic conditions than AA ratings.
  4. BBB: A medium rating, indicating a higher level of risk compared to an A rating.
  5. BB and so on: These ratings reflect a higher level of credit risk and are often referred to as “junk” or speculative.

Indonesia’s Tough Tax Ratio Challenge

Indonesia is still facing a big challenge as until now, Indonesia’s tax ratio is still difficult to increase significantly. Based on records, Indonesia’s tax ratio still lags behind ASEAN, G-20, and The Organisation for Economic Co-Operation and Development (OECD) countries.

Over the past few years, Indonesia’s tax ratio has fluctuated. Looking at the past 5 years, in 2018 Indonesia’s tax ratio was recorded at 10.24%. This figure dropped again to 9.76% in 2019 and to 8.33% in 2020.

With the easing of community activities, the tax ratio began to show an increase in 2021 to 9.11%. In 2022, the tax ratio rose again to 10.38%. Even so, Indonesia’s tax ratio position in 2022 is still only better than Laos (9.46%), Myanmar (5.78%), and Brunei (1.30%). This ratio is still far below Thailand (17.18%), Vietnam (16.21%), and Singapore (12.96%).

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The government sets the tax ratio target in the 2025 fiscal macro posture only in the range of 10.09% to 10.29% of GDP. The upper limit is lower than the achievement of the tax ratio in 2023 which amounted to 10.31%. However, this target is still higher than the tax ratio target in 2024 of 10.12%.

Strategic Steps to Achieve 13% Tax Ratio

To achieve the 13% tax ratio target, stronger strategic measures and policy reforms are needed. These measures include increasing the tax base by expanding taxpayer coverage, improving tax compliance, and optimising tax collection from economic sectors that have not been maximised.

In addition, reforms in tax administration are also crucial. Improving the capacity and efficiency of tax administration will help minimise tax leakage and increase state revenue. The government also needs to continue to improve the tax system to make it more transparent, accountable, and easily accessible to the public.

On the other hand, increasing the tax ratio also requires support from the public and businesses. Tax awareness and compliance from the public as well as greater contributions from businesses are needed. Therefore, the government needs to continue socialising and educating the public on the importance of taxes for the country’s development.

Benefits of Increasing Tax Ratio

Achieving a tax ratio of 13% will bring positive impacts to Indonesia, especially in terms of increasing fiscal capacity. With stronger fiscal capacity, the government will have wider fiscal space to finance development and public welfare. In addition, an increase in the tax ratio will also give a positive signal to investors and international credit rating agencies about the government’s fiscal health and commitment to implementing economic reforms.

In the long run, improving the tax ratio will contribute to macroeconomic stability and strengthening Indonesia’s competitiveness in the international arena. This effort is in line with the government’s vision to make Indonesia a developed and prosperous country.

Thus, achieving a 13% tax ratio is not just a numerical target, but a strategic step to improve the welfare and prosperity of the nation. Therefore, all parties need to play an active role and support the government’s efforts in increasing the tax ratio.

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