Indonesia Parliament Approves 2022 Budget, Pushes Tax Reform Law

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Indonesia’s parliament approved a $190 billion state budget for next year, while moving closer to passing sweeping reforms to the country’s tax system that should help fund spending and cut reliance on debt.

Lawmakers passed the 2022 budget into law at a plenary meeting on Thursday, with state spending seen at 2,714.2 trillion rupiah, slightly lower than the 2,750 trillion rupiah set for this year. It set a faster economic growth forecast of 5.2% for 2022, while reducing its budget deficit to 4.85% of gross domestic product from a projected 5.8% this year. 

Earlier in the day, a parliamentary commission approved a tax reform proposal that will introduce a carbon tax policy, overhaul the value-added tax system, expand income tax brackets, and offer another round of tax amnesty program. The bill will next be deliberated at the plenary level so it can be passed into law. 

Indonesia joins its neighbors in finding solutions to improve finances as a protracted coronavirus outbreak depletes government coffers. While Thailand has been forced to raise its public debt ceiling and Malaysia weighs doing the same, Indonesia has stood by its pledge to bring its budget deficit back to 3% of GDP by 2023 by streamlining spending and expanding revenue sources.

Southeast Asia’s biggest economy expects to return its GDP growth trajectory to over 5% next year after successfully combating its worst Covid-19 wave yet by reimposing mobility restrictions and speeding up vaccination rates. 

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