epajak.or.id The Strategic Role of Taxes in Improving HDI , Measuring the Quality of Human Development: HDI and its Parameters
A country’s progress is not only measured by economic growth, but also by the quality of human development as reflected in the Human Development Index (HDI). The HDI, introduced by the United Nations Development Programme (UNDP) in 1990, is an important indicator to assess the quality of human resources. There are three main components in the HDI: longevity and healthy life, level of knowledge, and decent standard of living.
The longevity and healthy life dimension is measured through birth rates and life expectancy. The education dimension is measured by the average years of study as well as the expected years of schooling. Meanwhile, the standard of living is assessed based on real expenditure per capita calculated from socioeconomic surveys and commodity price data.
Indonesia’s HDI Progress in the Last Three Years
Data from the Central Statistics Agency (BPS) shows that Indonesia’s HDI has continued to increase in the last three years, from 73.16 in 2021 to 74.39 in 2023, with an average growth of 0.62% per year. Based on the UNDP report, Indonesia is ranked 112 out of 191 countries in 2022, categorised as a country with a high HDI. However, this ranking still lags behind some ASEAN countries such as Singapore, Malaysia, and Thailand that have very high HDIs.
This achievement encourages the government to increase its commitment to improving the HDI ranking by providing better access to basic needs, such as health, education, and social services.
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Tax as the Foundation of Human Capital Development
Taxes are the main source of state revenue used to support development, both physical and non-physical. The government prioritises the health and education sectors to create quality human resources that are ready to compete globally.
In the 2024 BPS report, the construction of health and education facilities showed a positive trend. Throughout 2023, the government and the private sector built 13,571 health facilities, an increase of 0.9% compared to the previous year. In the education sector, there were 1,749,073 units of formal education facilities in 2022, growing 0.13% from 2021. In addition, the number of medical personnel and educators also increased, each by 3% compared to the previous year.
The positive impact of this development can be seen in the increase in budget allocation. In 2023, the budget for the health sector reached IDR96.621 billion, while the education budget reached IDR234.089 billion. This shows that the government continues to increase investment in improving people’s quality of life through taxes.
Tax Function in Supporting HDI
In an article written by Directorate General of Taxes (DGT) fiscus Dedik Herry Susetyo on the DGT official website, it is explained that taxes have three main functions: budgeter function, income redistribution, and regulerend function. The budgetary and redistribution functions can be seen from the allocation of funds for the health and education sectors. Meanwhile, the regulerend function is utilised to achieve certain objectives outside the financial aspect through taxation policy.
The Harmonisation of Tax Regulations Law (HPP Law) passed in 2021 is one of the strategic policies that support the regularend function of taxes. The HPP Law includes provisions related to Income Tax (PPh), Value Added Tax (VAT), and tax incentives that support the health and education sectors.
Tax Support to the Health and Education Sectors
In the health sector, taxes support the exemption of income tax on the income of medical personnel during the Covid-19 pandemic. The government also exempted VAT for individual and community health services. This policy helps improve people’s access to quality health services.
Meanwhile, in the education sector, tax incentives are provided in the form of income tax exemptions on assistance, grants, and donations received by educational institutions. The government also exempts VAT for education provision services, both formal and non-formal, making it more affordable for the wider community.
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Challenges and Opportunities: Economic Inequality and Demographic Bonus
Despite its progress, Indonesia still faces challenges in the form of economic inequality. As an archipelago, uneven development is a major obstacle in improving the quality of life of the people. This inequality has the potential to limit people’s access to education and health services in remote areas.
However, the demographic bonus that results in a high number of productive age population is a great opportunity for Indonesia. By utilising tax optimally