Indonesia Fiscal Reform Development Policy Loan

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The development objectives of the Fiscal Reform Development Policy Loan in Indonesia are to: increase tax revenue and improve equity of the tax system; and to strengthen institutions for planning and budgeting, and fiscal transfers. The operation helps address some key revenue and expenditure challenges. Pillar 1 supports increasing value-added tax revenue through increasing the rate and rationalizing exemptions, increasing personal income tax revenue from high-income earning individuals, and introducing a carbon tax. Increased revenue will improve the resilience of the fiscal system. Pillar 2 supports reforming the intergovernmental fiscal transfer system, strengthening the link between planning and budgeting, and improving capital budget execution. These reforms increase funding for the more populous regions and increase the orientation of spending on results and national priorities. The operation is consistent with the Green, Resilient and Inclusive Development approach.