Jakarta. The Indonesian government is conducting a study on the underground economy, which encompasses tax evasion and other illegal activities. According to Finance Minister Sri Mulyani Indrawati, there is significant untapped potential for state revenue from these underground activities.

Sri Mulyani said the approach to addressing the underground economy will vary depending on the nature of the activities involved, whether they relate to tax evasion or criminal acts. For example, activities such as under-reporting land area or transfer pricing in the palm oil industry will be treated differently than illegal activities.

"If the underground economy involves tax evasion, the approach will be different. This is currently being mapped by Deputy Finance Minister Anggito through the tax team, customs, and non-tax state revenue (PNBP) teams," Sri Mulyani said at a press conference in Jakarta on Thursday.

The Finance Ministry, through the Directorate General of Taxes, Customs and Excise Directorate, and the PNBP technical team, is mapping and addressing these practices, including inaccurate reporting and transfer pricing that could harm the country’s finances.

However, if the underground economy relates to illegal and criminal activities, such as online gambling and other illicit operations, the Security Affairs Coordinating Ministry will be involved.

Online gambling transactions are estimated to reach hundreds of trillions, but tapping into this fund would mean legalizing gambling, a move rejected by Nailul Huda from the Institute for Development of Economics and Finance (INDEF). "Taxing online gambling doesn't address the issue; it implicitly legitimizes it by recognizing it as lawful income, which is harmful to the country," he said recently.

The Financial Transaction Reports and Analysis Center (PPATK) reported recently that it has frozen 13,481 bank accounts linked to online gambling activities, totaling approximately Rp 280 trillion ($17.77 billion) by the third quarter of 2024. 

The government is continuing to coordinate with relevant ministries and strengthen efforts to map out illegal activities in order to mitigate their negative impacts on the national economy.

"The activities will vary, but we will gradually map them with the relevant ministers, in coordination with the Coordinating Ministers," Sri Mulyani concluded.

The government has set a tax revenue target of Rp 2,189.3 trillion for the 2025 state budget. This target is allocated across several tax categories, with income tax (PPh) expected to contribute Rp 1,209.3 trillion, value-added tax (VAT) and luxury goods tax (LGT) projected to generate Rp 945.1 trillion, property tax set at Rp 27.1 trillion, and other taxes contributing Rp 7.8 trillion.

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