Local Tax Ratio Falls to 1.12%, Bappenas Urges Tax Exploration
JAKARTA, DDTCNews - The Ministry of National Development Planning/National Development Planning Agency (Badan Perencanaan Pembangunan Nasional/Bappenas in Indonesian) has recorded that the local tax ratio (LTR) fell to 1.12% in 2025.
This figure is lower than the 1.22% achieved in both 2023 and 2024. Anang Budi Gunawan, Director of Governance, Local Finances and Transfers to Regions at Bappenas, said the decline in the LTR in 2025 is of concern to the government, particularly in efforts to meet the local tax ratio targets set out in the National Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah Nasional/RPJMN in Indonesian) 2025–2029.
"The data available for 2025 has actually shown a decline in the local tax ratio to only 1.12%," he said at the Dissemination of the Study on the Analysis of Local Tax Ratio Indicator Achievements, cited on Wednesday (21/10/2026).
Anang explained that the government has set a national average LTR target of 1.25% for 2025. This ratio is expected to rise to 1.45% by 2029.
According to him, the LTR achievement of 1.22% in 2023 and 2024 had provided optimism that the RPJMN targets could be met. However, the decline in 2025 indicates the need to evaluate the targets and strategies for increasing local taxes.
"We need to revisit whether the targets set for each province are appropriate. Do they need to be revised, and so forth?" he said.
Anang explained that the national LTR target is an aggregation of the targets from all provinces. Therefore, the government needs to ensure that the targets set by each region have taken into account economic conditions and the potential of their tax base.
He cited the example of regions with high economic growth, such as North Maluku, which do not necessarily have a large tax base. Such conditions must be taken into account when local governments set LTR targets, so that the targets formulated are better suited to the characteristics of each region.
Bappenas plans to review and evaluate the RPJMN next year. The analysis of LTR indicator achievements, carried out in collaboration with relevant parties, is expected to serve as input for the formulation of future policy.
Anang also emphasised that improving the LTR should not be interpreted solely as an effort to raise tax rates. Local governments need to broaden the tax base, improve taxpayer compliance, enhance tax administration and promote formal and productive economic activity.
These measures can be taken through mapping regional economic potential, updating the taxpayer database, strengthening administration, and leveraging digitalisation. Such efforts are also necessary to reduce leakages in local tax revenue.
"This way, tax revenue can increase without impeding investment and regional economic growth," he said.
Anang added that strengthening the LTR forms part of the effort to reinforce the foundations of local finances and promote tax independence. The strategy for optimising local taxes and user charges has been set out in national development planning documents.
Nevertheless, he cautioned that local tax independence does not mean reducing the importance of transfers from the central government to regions. Strengthening local revenue capacity is instead aimed at improving local governments' ability to finance construction in a sustainable manner, in accordance with the potential and characteristics of each region.
Anang also highlighted the general upward trend in local tax revenue, which rose from 17.1% in 2021 to 25.8% in 2026. However, the increase in the local tax ratio needs to be examined carefully, as it may be influenced by a decline in transfers to regions (transfer ke daerah/TKD in Indonesian), meaning that an increase in the ratio does not necessarily fully reflect a strengthening of tax revenue.
For this reason, local governments must continue to explore their tax potential, including through the diversification of economic activities, particularly for regions that remain dependent on specific economic sectors. (dik)