The COVID-19 pandemic profoundly impacted various aspects of life globally, including in Indonesia. Small and medium enterprises (SMEs) were particularly affected as Indonesia implemented large-scale social restrictions at the peak of the pandemic to curb the spread of the disease.
Numerous studies have assessed the pandemic’s economic impacts, including its effects on the stock market, tourism, and poverty. But evidence examining its impact on SMEs, particularly regarding their tax performance across diverse Indonesian regions, remains relatively scarce.
This under-exploration is surprising given that SMEs play a key role in Indonesia’s economy, absorbing 97% of the total workforce and contributing over 60% of its gross domestic product (GDP) in 2019. Studying the nature of the coronavirus pandemic in relation to SMEs could provide valuable insights for policymakers—particularly tax authorities—to recognise regional variations in SME capacity and mitigate future risks associated with similar disruptions.
The administrative framework of the Directorate General of Taxes Indonesia (DGT) is crucial for this research. Specifically, the implementation of a presumptive tax regime for SMEs, commencing in 2013, permitted the observation of self-assessed presumptive tax payments. The presumptive tax was designed to assist SME taxpayers in meeting their tax obligations by using annual turnover as a proxy to estimate their tax liability.
This setting enabled us to utilise a panel dataset of monthly SME tax contributions, administered by 319 tax offices across 43 cities over an 86-month period from January 2016 to February 2023. Figure 1 shows the geographical distribution of these 43 representative cities included in the study.
Figure 1: Distribution of representative cities in Indonesia
Source: adapted from data analysis results.
Impact of the pandemic on self-assessed tax payments of SMEs
The analysis employed a Seasonal Auto-Regressive Integrated Moving Average (SARIMA) framework. This model was selected for its ability to comprehensively analyse the features of time series data—such as seasonal, cyclical, and random variations—in two consecutive phases.
First, we analysed tax collection data from January 2016 to February 2020 (the pre-COVID period). We transformed absolute tax payments into logarithmic values to create a proxy measure and ran the analysis to estimate the expected tax revenues for the subsequent 12-month period under the counterfactual scenario that the pandemic had not occurred.
Second, we re-applied the SARIMA framework using data from January 2016 to February 2022 to estimate the counterfactual tax revenues for the next 12-month period, simulating a scenario where the pandemic had persisted. This allowed us to evaluate the subsequent economic rebound (the post-COVID analysis). The gap between the predicted and actual (proxy) values was evaluated using metrics such as the mean absolute error (MAE), primarily highlighted for its intuitive interpretation.
The analysis revealed that during the COVID-19 period, almost all regions studied recorded negative values, confirming a decreasing trend. These negative values ranged from an MAE of −7.8% in Mamuju (the smallest decline), to −17% in Bengkulu (a moderate decline), and down to −38.8% in Denpasar (the largest decline).
We suspect that the most severe decrease, which was observed in Denpasar, occurred due to abrupt restrictions on mobility, which limited people’s movement and reduced activity in trade and recreation centers. A likely explanation for this sharp decline is the region’s heavy reliance on tourism activities.
Conversely, in the post-pandemic analysis, we observed positive values in most regions examined, signaling the initial stages of economic recovery. With a median MAE value of 19.6% in Depok, we noted the three largest positive MAE values: 34.2% in Medan, 37.5% in Denpasar, and 50.2% in Batam.
These results are highly likely due to the easing of mobility restrictions, which allowed for the resumption of trade activities and the recovery of agriculture industries in the respective regions. Furthermore, we estimate that the economic recovery was also driven by the government’s prudence in administering a conservative fiscal approach, as well as by a commodity price windfall that followed the easing of mobility restrictions.
To complement the analysis, Figure 2 presents an evaluation by comparing the changes in self-assessed presumptive tax payments (measured as a percentage of MAE) for the during-COVID and post-COVID periods. The results for the first and second periods are displayed in the left (red) and right (blue) horizontal bars, respectively.
Figure 2: Changes of self-assessed presumptive tax payments as the percentage of MAE
Source: adapted from data analysis results.
Conclusions
Overall, we found that the COVID-19 pandemic impacted presumptive tax receipts from SMEs, and that this impact varied from one region to another in both the during- and post-COVID periods. More specifically, the evidence suggests that during the pandemic, self-assessed presumptive tax payments from SMEs decreased by an average of 17.0%. Two years post-COVID, the respective tax payments had increased by an average of 19.7%.
This analysis could serve as a benchmark framework for emerging countries facing major disruptions like those caused by COVID-19. By highlighting clear regional variations in the relationship between the pandemic and SMEs’ self-assessed presumptive tax receipts in Indonesia, our study provides an evidence-based analysis.
This framework can also be replicated to inform public policy refinements in a wider context, not only in emerging economies but also in advanced ones.
Further reading
Ferry; Hasseldine, John. (2025). An analysis of the pre-and post-coronavirus pandemic self-assessed tax payments of SME taxpayers in Indonesia. eJTR, 23(1), 32–61.
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