IMF's staff report on Indonesia prepared for 2014 Article IV Consultation says: "Based on more conservative revenue and expenditure targets and factoring in the expected decline in oil and gas revenues, staff indicated that the overall fiscal deficit would likely be around 2.4 percent of GDP, as shown in the current baseline. To safeguard performance in 2015, staff recommended a moderate increase in fuel excises (equivalent to around 0.3 percent of GDP), which could be more easily absorbed by consumers given recent reductions in retail fuel prices. Higher taxes on tobacco and luxury goods could provide additional revenues."

It adds: "Over the medium term, staff recommended a small primary deficit, in order to keep debt levels stable and safeguard against a reversal in inflows. In support, the authorities were urged to pursue tax reforms along the lines of recent FAD TA (Finance & Development Technical Assistance), focused initially on broadening the base, streamlining exemptions (notably the VAT), and enhancing risk-based tax administration. Staff noted that these reforms would take time to prepare and implement properly, with only a gradual increase in tax revenues built into the current baseline. A more ambitious rise would require broader, complementary reforms, including rationalizing corporate tax rates, strengthening the property tax regime, and raising the VAT rate and select excises."

The Report notes that Indonesian authorities are mindful that continued decline in oil prices will have an impact on non-tax revenue. They will strive to substantially increase tax revenue in order to offset lower non-tax revenue. In this connection, the authorities will persevere to maintain sustainable revenue sources by revamping tax administration, increasing compliance of individual taxpayers, strengthening enforcement and reducing tax distortion in strategic sectors, broadening tax based, optimizing custom and excise policies and enhancing the VAT system.

The new administration in Indonesia submitted a revised 2015 budget proposal to Parliament in early January that aims to carve out significant new space for capital spending, while maintaining a prudent fiscal stance. To this end, the revised budget seeks to target a central government deficit of 1.9 percent, against 2.2 percent of GDP in the original budget and preliminary outturn of 2.3 percent of GDP in 2014. Under the current proposal, the government expects to offset the large reduction in oil and gas revenues with ambitious increases in non-oil tax revenues, while allocating most subsidy-bill savings to capital spending.

As put by the Report, "the main challenge for Indonesia is to chart a course to higher, more inclusive growth, while preserving macro-financial stability and further strengthening the external position. Moderate fiscal consolidation would help improve funding conditions and facilitate external adjustment. It should be underpinned by a broad tax revenue strategy and supported by prudent borrowing, with a view to generating ample resources for growth-critical spending and maintaining debt sustainability."