Personal Income Tax Piggybacking
PIT piggybacking could be a major source of revenue for district governments in Indonesia. We estimate that the introduction of PIT piggybacking could increase district own-source revenue by an average of 8.3%. However, successful introduction of the PIT piggybacking requires that: The tax administration can correctly identify taxpayer residence. This is because collected revenues levied by the district ought to be remitted to the taxpayer place of residence. This residence focus is needed to strengthen the fiscal contract accountability between subnational governments and their residents. Taxpayers also need to understand that the PIT piggyback is a subnational revenue instrument and not a central government one. Taxpayer knowledge on this is crucial to strengthen the fiscal contract between subnational governments and residents. The report also discusses two case studies: Croatia and Denmark which identify a number of concrete implementation lessons for Indonesia. Croatia is one of the few middle-income countries to utilize a PIT piggyback.
