As Indonesia embarks on the challenging process of recovering from the impacts of the coronavirus disease (COVID-19) pandemic, the role of local governments in ensuring that public goods and services are delivered to Indonesians in every corner of the archipelago will become even more critical.

Integral to the fulfillment of this mandate is the need to improve the capacity of local governments to generate tax revenue from local sources. Even prior to the pandemic, a third of all local government units in the country were only able to finance 5% of their budgets with locally sourced revenue. The need to increase this ratio is even more apparent given the central government’s desire to reduce pressure on its fiscal balance.