Every nation relies on tax revenue to fund schools, hospitals, roads, and other public services. With its ambitious social and economic goals, collecting enough revenue for developing countries like Indonesia is not just about balancing the books—it’s about securing the future.
Yet, Indonesia faces a stubborn problem: despite reforms and modernisation, its tax-to-GDP ratio remains among the lowest in Asia. In 2021, Indonesia collected only 9.1% of GDP in taxes, compared with 15% to 18% in countries such as the Philippines, Vietnam, and Cambodia. This gap leaves the Indonesian government struggling to meet its people’s needs.
Why does this happen? Weak compliance is the main culprit. Many taxpayers either fail to file or underreport, and audits and enforcement by the tax regulator are limited. To address this, the Indonesian Directorate General of Taxation (DGT) introduced the Balanced Scorecard (BSC), a management framework that acts like a “dashboard” for organisations. The framework were to better align internal operations of DGT with broader compliance and revenue objectives.
However, until recently, no one had tested whether the supposed cause-and-effect relationships within the BSC framework—such as better services leading to higher compliance—actually work in practice. My recent eJournal of Tax Research paper addresses this question.
A “scorecard” for tax administration
The BSC, which was first designed for businesses, measures performance not only in financial terms but also through service quality, internal processes, and organisational learning. It can be considered as a chain: training staff well, improving internal systems, delivering better services, winning taxpayer trust, and finally, increasing revenue.
In 2010, DGT adopted this model to better align its strategy with compliance and collection outcomes (see Figure 1). By 2014, the Ministry of Finance made it the official performance management tool for all its agencies. However, despite more than a decade of using BSC, the big question remains: do the links in this chain really exist, and if so, which links are the strongest?
Figure 1: The DGT’S Balanced Scorecard model
Examining the evidence
To answer this question, I analysed the performance data from 319 small tax offices across Indonesia, drawing on 19 key performance indicators covering everything from employee training to audit results and taxpayer compliance.
This study used a method called path analysis, which looks at how improvements in one area ripple through to others. Instead of focusing on a single variable, it maps the web of connections—such as tracing how better staff training might lead to more effective audits, which then improves compliance and eventually boosts revenue.
By separating the results between Java, the country’s economic powerhouse, and non-Java regions, the research also sheds light on regional disparities that are often hidden in national averages.
What drives compliance?
The findings highlight two clear compliance drivers: taxpayer outreach and enforcement.
Outreach programmes, such as guidance, counselling, and assistance for taxpayers, were strongly linked to higher filing and payment compliance. People are more likely to comply when they understand the system and feel supported by the DGT.
Enforcement activities, such as audits and debt recovery, also had a significant impact. Knowing that non-compliance is likely to be detected and penalised encourages more taxpayers to comply with the rules.
This confirms a long-standing intuition: compliance is a mix of service and supervision. The DGT should make it easy and fair for taxpayers to comply but also show that evasion has serious consequences.
Compliance–revenue puzzle
However, the research also uncovered a surprising twist. While outreach and enforcement boosted compliance, the link between compliance and actual revenue collection was not straightforward.
In some cases, higher compliance scores—particularly those measuring payment participation—were even negatively associated with revenue outcomes. How could this be?
The explanation lies in the nature of the compliance indicators. A high payment compliance rate may reflect that more taxpayers are making small contributions, which does not necessarily translate into substantial revenue growth. In other words, more people are paying, but they are not enough to move the needle. This mismatch suggests that performance measures must distinguish between the “quantity” of compliance and the “quality” of contributions.
Java versus non-Java: A tale of two regions
This study also revealed striking regional differences. In Java, where systems are more standardised and resources are more concentrated, internal processes are tightly integrated. Outreach drives compliance, but it does not reliably boost revenue. This may be due to diminishing returns—once most taxpayers are already filing tax returns, extra efforts produce little new revenue.
In non-Java regions, the story is different. Outreach and audits have a stronger and more direct effect on compliance and revenue. Here, improving services and enforcement directly translates into fiscal gains, reflecting the greater growth potential in less developed administrative areas.
These contrasts underline a crucial lesson: tax strategies cannot be one-size-fits-all. What works in more developed Jakarta or Surabaya may not work in less developed Sulawesi or Papua.
Why does this matter for policy?
The implications are clear. If Indonesia wants to strengthen tax compliance and revenue mobilisation, it must invest more heavily in outreach and taxpayer services. Building awareness and trust encourages voluntary compliance, reducing the need for costly enforcement. Simultaneously, strong enforcement capacity must be maintained to ensure that evasion is not rewarded and that the integrity of the system is preserved.
Another lesson is that the performance indicators themselves need refinement. Compliance should not be measured simply by participation rates but also by the size and quality of contributions relative to targets. Otherwise, policymakers risk mistaking quantity for progress while overlooking gaps in actual revenue collection.
Finally, the strategies must be tailored to the regions. In Java, the challenge is to innovate to counter diminishing returns, while for non-Java regions, the priority is to expand outreach, training, and audit capacity.
Beyond numbers: trust and fairness
Ultimately, tax systems are not just about numbers. They are about relationships—between citizens and the state, between taxpayers and their peers, and between policy goals and everyday realities.
The BSC is a useful tool, but only if its “cause-and-effect” logic accurately reflects these relationships. Outreach and enforcement may be the strongest levers, but without trust in how revenues are used, compliance will always face limits. People are more likely to pay their taxes when they see fairness, transparency, and community benefits.
Moving forward
This research provides rare empirical evidence on how Indonesia’s tax administration functions at the operational level.
Using the BSC model under investigation (Figure 1), the evidence shows that outreach and enforcement are the strongest drivers of taxpayer compliance, confirming the importance of both support and credible supervision. However, compliance does not consistently translate into revenue: while formal compliance can raise collections in some regions, participation-based measures often fail to generate significant gains. Regional variation is also clear—Java shows diminishing returns where compliance no longer boosts revenue, whereas outreach and formal compliance still benefit non-Java regions more directly.
This shows that while the balanced scorecard framework has potential, it needs constant adaptation to local contexts and careful refinement of its indicators.
The message is both sobering and hopeful for policymakers. It is sobering because improving compliance is not as simple as increasing filing rates or launching digital platforms. It is hopeful because the data show that targeted outreach and fair enforcement can make a real difference—especially when combined with efforts to build trust and demonstrate the value of paying taxes.
Conclusion
Improving tax compliance in Indonesia is not just about collecting more money—it is about creating a fairer, stronger social contract. Although outreach and enforcement are vital tools, they must be combined with transparency, trust-building, and regionally tailored strategies.
As Indonesia works towards a more sustainable fiscal future, the lesson is clear: better performance management is not about ticking boxes but about understanding people, behaviours, and contexts. Only then can tax reforms truly support a nation’s development goals.
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