The U.S. Government’s 2025 National Trade Estimate Report on Foreign Trade Barriers outlines a number of challenges affecting its bilateral trade with Indonesia. A key highlight is the 32% reciprocal tariff—a legacy of the Trump administration—imposed on Indonesian exports. This policy, although years old, remains active due to unresolved structural concerns, particularly in Indonesia’s tax administration system.

The Core Tax Issues Highlighted by the U.S.

On page 213 of the report, the U.S. voices its concern over how Indonesia’s Ministry of Finance (MOF) and the Directorate General of Taxes (DGT) handle tax assessments. The issues include:

• Lack of transparency in the audit process.

• Excessive penalties for simple administrative errors.

• Lengthy dispute resolution timelines.

• Limited legal precedent within the Tax Court, leading to uncertainty.

These tax-related criticisms underline how procedural inefficiencies can evolve into full-blown trade frictions.

Ongoing Improvements in Tax Transparency

The Indonesian government has made several strides to address these concerns. One major reform is MOF Regulation No. 15 of 2025, which consolidates audit guidelines and mandates a “discussion of preliminary findings.” This procedure allows taxpayers and auditors to exchange views on the case before a final conclusion is reached, encouraging a more collaborative, evidence-based approach.

By emphasizing dialogue, this reform aims to improve clarity in tax audits and reduce miscommunication, which has long been a trigger for disputes.

A Fairer Sanction Model for Tax Compliance

Another critical concern is the disproportionate application of tax sanctions. U.S. stakeholders argue that even honest mistakes result in severe penalties, which creates a climate of fear and unpredictability for businesses operating in Indonesia.

To address this, the DGT is pushing for a risk-based penalty framework, where enforcement is calibrated based on the nature of the taxpayer’s error. The goal is to distinguish between deliberate tax evasion and good-faith mistakes, promoting both fairness and voluntary compliance.

Streamlining the Tax Dispute Process

The length of time it takes to resolve tax disputes—especially appeals to the Tax Court—has also raised red flags. In practice, disputes can drag on for over a year, delaying certainty for businesses and affecting financial planning.

To solve this, the Indonesian government has taken steps to expand the Tax Court’s capacity, including hiring more judges. These efforts are designed to reduce the backlog and provide swifter access to justice for taxpayers. Still, with rising case volumes, more structural reforms may be needed to fully solve the issue.

Enhancing Legal Certainty in Tax Court Decisions

One persistent concern from U.S. investors is the inconsistency in legal interpretation within Indonesia’s tax system. A lack of precedent or publicly accessible rulings makes it difficult for taxpayers to anticipate how courts might rule.

To remedy this, the Tax Court is working to publish case summaries and decisions online, aiming to improve consistency and predictability in legal interpretation. This is a step toward legal certainty and investor confidence.

The Bigger Picture: From Tax Reform to Trade Relations

While the U.S. tariff is ostensibly about trade, the underlying issue is tax governance. A transparent, predictable, and efficient tax system is a vital part of any country’s economic infrastructure—and it plays a direct role in shaping international trade dynamics.

Indonesia’s current tax reforms, if followed through consistently, could serve as the foundation for removing or reducing the 32% reciprocal tariff. Moreover, they will enhance the country’s reputation among global investors and trading partners.

Conclusion: Reforms That Build Trust

The U.S. trade concerns should not merely be viewed as criticisms but as opportunities for Indonesia to modernize its tax system. By improving audit transparency, streamlining dispute resolution, and building legal consistency, Indonesia not only enhances domestic tax compliance but also strengthens its position on the global trade stage.

Ultimately, the path forward is clear: aligning Indonesia’s tax processes with international standards is not just good governance—it’s good economics.