Tax Elasticity in Addressing Tax Avoidance in Indonesia

A Study of Responsive Law

Abstract

Tax avoidance which still occurs greatly influences the tax ratio in Indonesia. One indicator that can influence the tax ratio is tax elasticity, considering the elasticity is a measure of the response of tax revenues to changes in national income resulting from policy changes in the tax structure, namely keeping all other parameters (including tax laws) constant. It means that ignoring the important function of tax elasticity shows the government's inability to balance growth by mobilizing revenue through taxation, which will result in the government being forced to borrow internally and externally to finance the increasing deficit. This understanding confirms that one solution for handling tax avoidance within a responsive legal framework is to always be alert to the elasticity coefficient which is expected to exceed one. This elasticity coefficient can show the productivity of a country's income and streamline its taxation system, without going through the political decision-making process which tends to be difficult. It is recommended to improve tax elasticity through strengthening elements in the form of tax elasticity to the base and base elasticity to income.