Indonesia's gray economy estimated at up to 40% of national total

Hashim Djojohadikusumo, founder of the Prasasti Center for Policy Studies, has highlighted that Indonesia's gray economy—unrecorded economic activity—is estimated by the World Bank to be between 30% and 40% of the national economy. He noted that while the official GDP is approximately US$1.4 trillion to US$1.5 trillion, the actual economy could be closer to US$2.1 trillion due to cash-based transactions that bypass formal reporting and taxation.

This significant informal sector contributes to a stagnant state revenue ratio, which has remained at roughly 12% of GDP for the last 13 years.

In response to economic complexities, Director General of Taxes Bimo Wijayanto outlined various government incentives designed to support businesses. These include indefinite final income tax (PPh) for individual MSME owners and tax deductions of up to 300% for companies conducting research and development within Indonesia. The government is also working to transition to a new Coretax administration system and aligning with OECD global minimum tax frameworks to provide greater policy certainty.