No. 151: Determinants of Tax Complexity in Tax Regulations and Tax Procedures – Evidence from a Developing Country

This study investigates the determinants of tax complexity in Indonesia, focusing on the perspectives of tax officers and firms, providing a case study relevant to developing countries. Understanding tax complexity in these contexts is crucial, as developing nations frequently encounter legislative, fiscal, and administrative challenges that exacerbate tax complexity. Such complexity can potentially hinder investment, impair tax revenue collection, and impede overall economic development. We adapt a global survey instrument to Indonesia and collect responses from Indonesian tax officers and firms. We identify transfer pricing, statutory tax rates, and dividends as the most complex tax regulations. Tax law enactment and tax appeals are perceived as the most complex tax procedures. This is in part in contrast to the global evidence, where statutory tax rates, dividends, tax law enactment, and appeals are not perceived as highly complex on average. Furthermore, comparative analyses show that tax officers perceive tax regulations as more complex than tax procedures, for example, transfer pricing regulations. This is often due to ambiguity in the regulations. In contrast, firms perceive tax procedures as more complex than tax regulations, particularly tax audits. Our findings provide a nuanced picture of tax complexity in a developing country and helpful insights and guidance for tax reforms in Indonesia. They also serve as a starting point for further analysis of developing countries.