Tax Evasion and Economic Inequality: The Role of the State in Ensuring Fiscal Justice in Indonesia

Abstract

This paper explores the critical issue of tax evasion in Indonesia and its role in exacerbating economic inequality. Despite being one of Southeast Asia’s largest economies, Indonesia’s tax revenue collection remains relatively low, due in part to widespread tax evasion, especially among large corporations and wealthy individuals. The study analyzes how tax evasion practices, including offshore tax havens, underreporting of income, and fraudulent deductions, contribute to the widening income gap between the rich and the poor. It critiques the role of the state in addressing these issues, examining the effectiveness of current tax policies, enforcement mechanisms, and anti-corruption measures. The paper also evaluates the social and economic consequences of tax evasion, particularly how it deprives the government of much-needed resources for public services such as education, healthcare, and infrastructure, which disproportionately impacts marginalized communities. By comparing Indonesia’s tax practices with those of other developing nations, the paper assesses the challenges faced by the government in implementing fiscal justice and ensuring that wealthier individuals and corporations pay their fair share of taxes. Finally, the study offers policy recommendations for improving tax compliance, strengthening enforcement, and increasing transparency in public financial management to foster a more equitable distribution of resources.