JAKARTA: The Finance Ministry is exploring the possibility of reducing the value-added tax (VAT) rate to boost consumption next year, despite an ongoing decline in tax collection.
However, the decision will depend on how revenue collection and the overall economy pan out this year.
At a press conference, Finance Minister Purbaya Yudhi Sadewa said he would “see how it goes by the end of the year” because “it is still rather unclear now.”
“We will see if we can lower the VAT to strengthen people’s purchasing power going forward. But we will study it carefully first,” the minister said, adding that the country’s tax-to-gross domestic product (GDP) ratio would continue to improve and “slowly go up” as the real economy recovers.
Indonesia has long struggled to lift its tax-to-GDP ratio beyond the 10% mark.
In fact, the figure worsened in 2024, falling to 10.08% from 10.3% the previous year.
President Prabowo Subianto’s administration has set a target of achieving a 23% revenue-to-GDP ratio by the end of his term, although the president has not specified a target for the tax-to-GDP ratio.
During the 2023 campaign period, Prabowo’s team stated that it aimed to increase the ratio to 13% to 14% by 2029.
So far this year, tax collection has continued to decline.
The government has achieved only 62% of its annual tax collection target with just three months remaining in the calendar year.
The current target itself was a downward revision from the original figure set in the 2025 state budget, with a difference of over 100 trillion rupiah.
Tax collection up to September fell 4.4% year-on-year, mainly due to a 9.4% decline in corporate income tax and a 13.2% drop in VAT and luxury tax collections.
At the same press conference, Deputy Finance Minister Suahasil Nazara did not identify the root cause of the contraction but attributed the decline to tax restitution, in which the ministry refunds previously paid taxes. — The Jakarta Post/ANN
