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Helping Indonesia to help itself

By Duncan Graham - posted Wednesday, 5 December 2007

Foreign aid is damaging the development of democracy in Indonesia. It’s maintaining the handout culture inherited from the Dutch colonialism that kept Indonesia as a mendicant nation.

Aid also perpetuates the image that the country is backward; it is - though only in the reluctance to introduce change.

Indonesia doesn't need the $2-per-citizen given in non-emergency aid by the Australian government, a major donor. The country is rich enough and if administered properly (meaning the internal tax take is handled efficiently and leakages plugged) then it could be self-sufficient.


The Indonesian tax office has long run a banner and billboard campaign to persuade people to pay their tax to help grow the nation. It's been overwhelmingly ineffective; business people regularly brag that they dodge tax because they don’t want to support corrupt officials.

Most governments don't plead for citizens to pay tax - they threaten and enforce.

This year Darmin Nasution, director general of taxes, confessed that only a third of the nation's 3.3 million taxpayers meet their responsibilities regularly. He said the number of taxpayers should be about 25 million. (The workforce is four times larger but low earners are exempt.)

Indonesia has a value added tax but it's only enforced in upmarket hotels and restaurants. Most small business run cash-only transactions and accurate books aren't kept.

About 10 per cent of total government revenue comes from tobacco tax. According to WHO figures, tax as a proportion of the total cigarette price averages 31 per cent in Indonesia - one of the lowest rates in the region. Elsewhere it's more than double.

Despite the small tax base, these incomes contribute more than 70 per cent of the State budget. Imagine what could be gleaned if all defaulters coughed up.


Reform of the tax system doesn't need a reinvention of the wheel; there are plenty of efficient revenue administration systems around the world that the Indonesian government can adopt and adapt. But that needs political will.

The Indonesian Constitution states 20 per cent of the nation's budget has to be allocated to education. The government ignores this charge, arguing it doesn't have the funds. It allocates less than 12 per cent. In the latest published figures Indonesia spent only 0.9 per cent of its GDP on education; Malaysia earmarks nearly 8 per cent.

The result is a disaster. Most exams are tick-a-box tests. Rote learning is the norm. As emeritus professor Budi Darma, an acclaimed novelist bemoaned: “Students don’t want to read. They only want the synopsis of a novel. There’s no status in buying books.”

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About the Author

Duncan Graham is a Perth journalist who now lives in Indonesia in winter and New Zealand in summer. He is the author of The People Next Door (University of Western Australia Press) and Doing Business Next Door (Wordstars). He blogs atIndonesia Now.

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All articles by Duncan Graham

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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