Introduction

This chapter analyzes the role of tax administration reform in supporting fiscal adjustment based on the recent experiences in Indonesia. It draws on an extensive set of tax administration reforms that Indonesia's Directorate General of Taxation (DGT) initiated in 2001 and has continued to implement through 2008, with refinements, under the country's broader economic reform program. Economic objectives commonly include promoting economic growth, achieving macroeconomic stability, alleviating poverty and reducing fiscal vulnerability. Tax administration and fiscal adjustment intersect when the implementation of a fiscal adjustment program requires the strengthening of a country's tax agency. The chapter discusses Indonesia's unfinished reform agenda for tax administration. Indonesia's fiscal adjustment and tax administration reform strategies emerged in the early 2000s against the backdrop of the East Asian financial crisis. The 1997 Asian financial crisis afflicted Indonesia more severely than most economies and served as a major catalyst for reforming Indonesia's tax administration.