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Finance
Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.
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Finance
Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.
With fintech paving the way forward, traditional banking followed suit by revolutionizing its services. From 2022 to 2023, the banking industry’s fund distribution increased by 6.28 percent, source of funds increased by 6.33 percent, and total assets in the industry grew by 6.98 percent, reaching a total of US$8.22 trillion. Moreover, even regional banks have been benefitting from this wave of innovation. For the same period from 2022 to 2023, the regional banking sector saw a 7.67 percent in distributed funds, an 8.08 percent increase in source of funds, and a 7.52 percent increase in total assets, reaching a total of US$137.96 billion.
Innovations in Indonesia’s finance sector extend beyond financial services. On September 2023, the Indonesian monetary authority, Bank Indonesia (BI), introduced three pro-market monetary instruments that function as short-term fixed income securities with high coupon rates. The three instruments, SRBI, SUVBI, and SUVBI, were able to collect Rp 409 trillion (US$25.2 billion), US$2.31 billion, and US$387 million, respectively.
Particularly in the case of the SRBI, this instrument represented an innovative way to attract capital flow from abroad during a period of high credit costs and slow investment. Approximately 20.77 percent, or Rp 85.02 trillion (US$ 5.26 billion), of the total outstanding SRBI were owned by non-Indonesian residents, underscoring the SRBI’s success as a monetary instrument.
Even when compared to other countries in the same region, the Indonesian finance sector stands out for its stability against fluctuations. Throughout 2023, the global cost of credit was high due to hawkish Fed policies made to curb US inflation, resulting in a stagnation of capital flow on a global scale. Entering the second quarter of 2024, the composite index of many Southeast Asian countries such as Singapore and Thailand recorded price decreases compared to the same period last year, reaching -3.96 percent and -13.9 percent on the Straits Times Index (STI) and the Bangkok SET index, respectively. Meanwhile, the Jakarta Stock Exchange Composite Index (JKSE) recorded a price increase of 5.18 percent for the same one-year period.
In summary, the Indonesian financial sector stands out for its stability and consistency, maintaining growth through innovation even during periods of austerity or global uncertainty. This consistency is also reflected in its GDP, which grew by 7.4 percent from 2022 to 2023, contributing roughly 4.16 percent to the national GDP in 2023.
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Indonesia may face a tax revenue shortfall this year, as recent data show the country had realized only 74.62 percent of its annual tax target as of November, underscoring mounting difficulties in sustaining revenue growth amid global and domestic economic headwinds. The World Bank Group (WBG) has projected Indonesia's tax ratio, the share of tax revenue in gross domestic product (GDP), to fall to 9.4 percent in 2025, down from 10.1 percent in 2024. The downward trend is a worrying signal for future state spending, particularly as the government rolls out costly flagship programs that risk widening the fiscal deficit.
The Finance Ministry reported that tax revenue realization reached Rp 1.63 quadrillion (US$97.62 billion) as of November 2025, well below the Rp 2.19 quadrillion target set in the 2025 state budget. This underperformance occurred despite gross tax revenue rising 1.9 percent year on year, as higher VAT restitution and other adjustments pushed net tax revenue growth into a 3.25 percent contraction.
The revenue weakness is also reflected in the World Bank's latest outlook, which projects Indonesia's tax ratio to remain in single-digit territory at 9.4 percent in 2025 and 9.7 percent in 2026. The declining tax ratio is expected to weigh on overall state revenue, prompting the government to raise its fiscal deficit projection to 2.8 percent of GDP, edging closer to the 3 percent legal ceiling stipulated in Indonesia's fiscal rules.
The Supreme Audit Agency (BPK) has identified several structural and administrative factors contributing to the tax shortfall. First, Government Regulation (PP) No. 14/1997 contains a loophole that allows capital gains from shares traded on the negotiated market to be taxed at prices below prevailing market values, eroding potential revenue. Second, PP No. 49/2022 permits input VAT in coal mining activities to remain creditable while most coal output, largely export-oriented, is subject to a zero VAT rate, resulting in chronic VAT overpayments and rising restitution claims. Third, the Directorate General of Taxes' information system is unable to directly detect discrepancies between VAT and income tax payment data and taxpayer and withholding agent reports, delaying the realization of Rp 6.12 trillion in VAT and Rp 85.13 billion in income tax.
To mitigate the potential shortfall, Finance Minister Purbaya Yudhi Sadewa said the government was considering front-loading tax collection, a measure previously applied to Article 25 Income Tax (PPh 25) in 2017, which shifted future tax payments into the current fiscal year. However, business groups have criticized the proposal for risking liquidity pressures that could dampen economic activity. Several analysts have also warned that front-loading could distort the 2025 tax base and weigh on revenue performance in 2026.
In parallel, the Finance Ministry has rolled out measures to keep the 2025 budget deficit below the 3 percent threshold. Purbaya said the government has channeled Rp 200 trillion in excess state funds to state-owned banks to stimulate private sector activity and support tax revenue generation. The ministry has also secured Rp 4.5 trillion from unspent budget allocations, as several ministries and agencies recorded spending rates below 90 percent.
The government has also introduced short- and long-term fiscal adjustments. The annual excise tax hike on cigarettes was lifted earlier in 2025, reducing excise revenue in the short term but potentially optimizing long-term excise revenue since cigarette excise made up about 96.2 percent of total excise revenue. Micro, small, and medium enterprises (MSMEs), which are not individual-run businesses businesses or sole proprietorships were required to shift to the standard income tax system with progressive rates based on net taxable income instead of the 0.5 percent allowance.
Going forward, front-loading tax collection should be treated as a last resort, given its potential adverse effects on business activity and future revenue realization. In line with the BPK's findings, the Finance Ministry could prioritize reforms to capital gains taxation, the VAT framework and the infrastructure supporting the Coretax integrated reporting system. Tax incentives should also be reviewed to eliminate schemes that deliver limited investment or formalization benefits. Over the longer term, rebuilding public trust and voluntary compliance will be critical to strengthening Indonesia's tax base.
