This op-ed by Andi Mohammad Ilham and Andi Mohammad Johan was first published by the Eurasia Review
Since the Global Financial Crisis (GFC) of 2008, one of the central themes in austerity debates has been tax reform and fiscal transparency. While international taxation reached an unprecedented level of collaboration through the OECD and G20, domestic tax policies in developed, emerging, and developing countries remained unsettled.
In this context, and alongside the exposure of the unintended consequences of the GFC, tax expenditures emerged as a significant component of the fiscal transparency agenda, making it necessary to a part of comprehensive tax system reform.
Historically, the discourse of tax expenditures has introduced in 1967 by Assistant Secretary of the US Treasury for Tax Policy, Stanley S. Surrey. The genuine goal is that this analysis was intended to serve as a catalyst for improving budget transparency. Although the tax expenditure discourse has matured considerably in developed and OECD nations, the post–GFC 2008 surge in global concerns over tax avoidance and evasion has pushed many emerging and developing economies to re-examine their tax systems in the quest for reform and transparency. Against this backdrop, rethinking the role of tax expenditures as an integral part of a nation’s tax system has become inevitable. However, Indonesia has still no discourse about the development debate of tax expenditure.
One of the problems with tax expenditures is that no country has successfully established a plausible welfare state based on their use. In terms of function, tax expenditures operate in parallel with direct expenditures or budget outlays, such as those for employment, health care, and other social services. In form, tax expenditures take the shape of tax deductions, deferrals, credits, and similar measures. Therefore, from a social science standpoint, tax expenditure represents the invisible government expenditure, labelling it as the hidden welfare state.
Moreover, the use of tax reform by many national governments tends to be directed towards spending reform, rather than the comprehensive assessment of tax expenditures. Considering fiscal administrative perspectives, tax expenditures should be evaluated with the same rigorous scrutiny as all other government spending program. Coinciding with the global rise of tax fairness and transparency, discussions on tax expenditures have become a new norm, highlighting how such expenditures create significant loopholes in the tax system.
Indonesia has experienced a few wave of national tax reform, the first wave from 2002 to 2008, second wave from 2009 to 2014, and the third wave from 2017 to 2024. Across these three waves, however, Indonesia has not established a significant track record of reforming or revisiting its concept of tax expenditures. In 2024, the country surprisingly achieved second place in the ranking by Global Tax Expenditures Transparency Index (GTETI). Still, Indonesia’s ranking should not be mistaken as proof of exemplary tax expenditure as a whole. In fact, emerging market and developing countries are still struggling to construct, legally as well as conceptually, the fundamental principle and definition of tax expenditures.
It is true to say that GTETI is comprising with five dimension assessments, including public availability, institutional framework, methodology & scope, descriptive TE data, and TE assessment. In 2024, however, Northern European countries, including Norway, Denmark, and Finland, are unexpectedly ranked only in the middle, trailing behind Ecuador, Pakistan, and Guinea. Even more striking, Japan ranks lower than Albania and Senegal. Through this data, emerging markets and developing countries should not simply emulate the approach of developed nations, as their systems do not necessarily provide a good example for reform.
Now, rising awareness of tax expenditures debates in emerging and developing countries is far from trivial. In short, it is about their alignment with the Sustainable Development Goals (SDGs). Here, Domestic Revenue Mobilization (DRM) assumes a key role in controlling climate finance and is intrinsically tied to the effectiveness and legitimacy of tax expenditures. In the summer of 2025, the Fourth Financing for Development Conference (FfD4) introduced a new global coalition through the Sevilla Platform for Action. In essence, it is a platform to initiate the effort of long-term strategies to rationalise tax expenditures, that will align with countries’ sustainable development goals.
Despite securing second place in the Global Tax Expenditures Transparency Index (GTETI) in 2024, Indonesia should reflect on the fact that this ranking does not capture the full systemic picture of its tax expenditures. As a growing global consensus has advanced the realization of transparency and reform agenda in tax expenditures, Indonesia must confront the reality that rankings are no substitute for comprehensive, transparency-driven, and reform-oriented tax expenditure policies.
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