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This paper should not be reported as representing the views of the IMF. The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. Tax administration reforms can play an important role in fiscal adjustment. This role is examined by reviewing Indonesia's tax reform cum fiscal adjustment experience since 2001. The paper describes Indonesia's fiscal adjustment strategy, its tax administration reforms, and assesses the impact of these reforms on fiscal adjustment. Evidence suggests tax administration improvements had a strong positive impact on the tax yield and a positive effect on the investment climate. Lessons are presented for designing tax administration reforms within the context of a fiscal adjustment program and reform priorities are identified for Indonesia's ongoing efforts to strengthen tax administration.

This Working Paper should not be reported as representing the views of the IMF. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management. This paper considers how a tax on financial transactions could be applied to three broad and partially overlapping categories of financial instruments: (1) exchange-traded instruments; (2) over-the-counter instruments; and, (3) foreign exchange instruments. For each category, the paper examines the factors that would facilitate or complicate the administration of a financial transactions tax, the options for collecting the tax, the types of compliance risks that are likely to be encountered, and measures for mitigating these risks. JEL Classification Numbers: G01, G02, G18, G38, H20, H26, H83

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Cross-border sales of goods and services have become a growing challenge to tax administration. Two particular challenges involve administering the value-added tax (VAT) on: (1) imported digital services and (2) low-value imported goods. In both cases, the rapid increase in cross-border transactions, brought about by digitalization and the rise of digital platform companies, combined with weaknesses in collecting VAT on those transactions have raised concerns that growing amounts of tax revenue may be foregone and domestic businesses may be at a competitive disadvantage vis-à-vis non-resident businesses. Concerns have also been raised that the current practices create risks of offshoring by domestic businesses to avail themselves of the more favorable VAT treatment In response to those challenges, an increasing number of countries are adopting new approaches to administering the VAT on imported digital services and low-value imported goods. This note describes the vendor collection model under which non-resident suppliers are required to register for VAT in those foreign jurisdictions where they make supplies to final consumers, 3 charge and collect VAT on those supplies, and remit the revenue to the foreign jurisdiction. This approach has been implemented by more than 60 countries for imported digital services and, more recently, by a growing number of countries for low-value imported goods. The note also describes the application of the reverse charge mechanism to collecting VAT on digital (and nondigital) services imported by businesses.As an alternative to the vendor collection method, a few countries, particularly in Latin America, require financial intermediaries (e.g., banks and payment service providers) to withhold VAT on consumers' payments to foreign businesses. Although outside the scope of this note, it should be pointed out that the financial intermediary withholding model has several weaknesses, including that it is generally restricted to a list of selected businesses (thereby raising neutrality concerns) and can be difficult to operate since the financial institutions do not routinely collect the transactions data required to determine their VAT treatment (thereby raising efficiency and effectiveness concerns).The note draws mainly on the practices of four countries: Australia, New Zealand, Norway, and Singapore. 4 These countries' practices are representative of the vendor collection approach that is workable in other IMF member countries, including those with less advanced tax administrations. Section I addresses issues concerning imported services, Section II covers low-value imported goods, and Section III describes key tasks for implementing both the imported services and low-value imports regimes. European Union practices are highlighted in Appendix I.