Bappenas: Wealthy Regions May Not Have High Tax Ratios
JAKARTA, DDTCNews - Regions with large economic activity do not necessarily succeed in collecting local taxes in high proportions.
The report Analysis of Local Tax Ratio Indicator Achievement by Region, prepared by the Ministry of National Development Planning (Bappenas) together with SKALA, reveals that economic structure and the ability of local governments to optimise their tax base are factors influencing local tax ratio (LTR) performance. Based on analysis covering the period 2014–2025, the relationship between gross regional domestic product (GRDP) per capita and LTR actually shows a negative tendency.
"Provinces with higher GRDP per capita do not always have a higher LTR," reads the report Analysis of Local Tax Ratio Indicator Achievement by Region, cited on Friday (22/10/2026).
The study explains that the scale of economic activity cannot necessarily be translated proportionally into local revenue. This is because not all economic activity forms the basis for tax collection by local governments.
Some sectors contribute significantly to GRDP, yet taxing authority over them rests with the central government or their connection to local taxable objects is limited.
The mining and extractive industry sector is one example. Activity in that sector can generate substantial added value, thereby increasing a region's GRDP. However, that increase in economic activity does not automatically boost local revenue in the same proportion.
A similar situation can arise in large-scale manufacturing industries and natural-resource-based export sectors. According to the Bappenas study, the majority of tax contributions from such activities flow into central government tax revenue. As a result, regions with high economic productivity do not necessarily possess equally strong capacity to collect local taxes.
These differences in economic characteristics are also evident from the results of grouping provinces by a number of indicators, including LTR, economic structure, GRDP per capita and tax buoyancy. The study divides provinces into 4 clusters with distinct characteristics.
For instance, in the first cluster there are 6 provinces with relatively large or natural-resource-based economies. This group has an average GRDP per capita of approximately IDR164.99 million, yet an average LTR of only 0.76%.
By contrast, the second cluster comprises 7 provinces with a stronger services-based economy and an average LTR of 1.89%. The average GRDP per capita of this group is approximately IDR102.76 million, lower than that of the first cluster.
This comparison illustrates that regions with higher GRDP per capita do not automatically record a higher LTR. However, this outcome does not mean that natural-resource-based regions necessarily have poor tax collection performance.
Differences in taxing authority and the composition of economic activity must be taken into account when assessing each region's achievement.
The study emphasises that LTR does not merely reflect a region's economic capacity; it also indicates the extent to which the economic structure and local tax system are able to convert economic activity into local revenue.
In line with this, improving LTR is not sufficient by relying solely on economic growth. Local governments also need to optimise their local taxing power through policies suited to the economic characteristics of their region, accompanied by improvements in collection effectiveness and optimisation of the tax base within their authority. (dik)