Illicit Financial Flows and Tax Justice: Institutional Challenges in Emerging Economies

Abstract

Illicit financial flows (IFFs) pose a significant threat to domestic revenue mobilization and undermine tax justice, particularly in emerging economies. This paper examines Indonesia’s legal and institutional responses to tax-related IFFs, including tax evasion, aggressive avoidance, and cross-border profit shifting. Through doctrinal legal analysis and institutional assessment, the study identifies persistent enforcement gaps related to beneficial ownership transparency, information exchange, and inter-agency coordination. The findings suggest that domestic reforms alone are insufficient to address IFFs without complementary changes in global financial governance. This paper contributes to the global tax justice literature by demonstrating how international secrecy jurisdictions and asymmetric cooperation frameworks disadvantage developing countries. Indonesia’s experience underscores the need for stronger multilateral mechanisms and inclusive global standards to effectively combat IFFs. By situating national challenges within global structures, this study advances the argument that tax justice requires systemic international reform rather than isolated domestic interventions.