TAX REVENUE AND ECONOMIC ACTIVITY: SEASONALITY, COINTEGRATION AND CAUSALITY ANALYSIS

The role of taxation is very important for the financing of development in Indonesia. However, the performance of tax revenue has not been optimally indicated by the low ratio of tax to Gross Domestic Product (GDP) which in 2015 the ratio is 10.7% of GDP. This tax ratio is still lower than the tax ratio of neighboring countries such as the Philippines (13.6%), Malaysia (14.3%) and Thailand (16.5%). Even in 2016 the tax ratio declined slightly to 10.3% of GDP.With the scope of the study limited to non-oil and gas income tax and value added tax which contributes more than 80 percent of total tax revenue, this study objective is to understand the relationship between tax revenue and economic activity that can provide insight into the effectiveness of tax policy.This study uses monthly realization of tax revenue both total and sectoral. For economic activity data, we use data derived from national account data or GDP based on expenditure and production approach (sectoral). Monthly tax revenue data is then aggregated into quarterly data to match the frequency of GDP data. Period of data being studied is Q1 2010 - Q4 2017. Tax revenue and economic activity data needs to be seasonal adjusted and then separated into trends and cycles. To examine the relationship between tax revenue and economic activity, we performed several tests such as unit root test, cointegration test and causality test.The main contribution of this study are the empirical testing on the lingkage between tax revenue collection and economic activity and the policy implication of this study which in order to increase the tax revenue collection, government should formulate policy to increase production, investment and consumption because production, investment and consumption will increase tax base.