Finance Minister Purbaya Yudhi Sadewa said he is carefully reviewing the government’s plan to lower the value-added tax (VAT) rate, noting that every one percentof tax reduction could cost the State as much as Rp70 trillion (US$4.24 billion) in lost revenue.

Speaking at the Gathering of 100 Indonesian Economists event held at Menara Bank Mega in Jakarta on Tuesday, October 28, 2025, Purbaya admitted that his confidence in reducing the VAT rate had changed after assuming the role of finance minister.

“Before becoming finance minister, I was very confident about cutting VAT. But now I realize, every 1 percentreduction means losing Rp70 trillion in state revenue, that’s quite a loss,” he said.

Purbaya emphasized that any decision to lower the VAT rate would be made only after a comprehensive assessment of the government’s ability to strengthen tax and customs collection systems.

“I want to see first how well we can improve tax and excise collection through better systems. I’ll fix that first, maybe within the next two quarters, then I can measure it properly, on paper,” he said.

Once the government’s tax collection performance is more predictable, Purbaya said, he would be in a stronger position to make major policy decisions, such as reducing VAT.

“From there I can estimate our real potential revenue, how much we would lose if we cut the rate, and what the impact would be on economic growth,” he cited.

Although the VAT cut remains part of his long-term plan, Purbaya stressed that fiscal prudence is crucial, especially as he enters his early months in office.

“It’s already on paper, part of my plan. But I have to be careful. I’ve only been finance minister for two months. If I make a mistake, our fiscal deficit could shoot above 3percent,” he said, half-jokingly adding that while he can be bold “like a cowboy,” he must remain “stingy and cautious.”

Earlier this month, Purbaya signaled during a press conference on the APBN KiTa (Our State Budget) updatethat the government was considering a possible VAT reduction as a policy tool to support household purchasing power.

Background

Indonesia’s VAT rate was raised from 10 percent to 11 percent on April 1, 2022, following the implementation of the Tax Regulation Harmonization Law (UU HPP). The law initially stipulated another increase to 12 percentscheduled for early 2025.

However, President Prabowo Subianto later announced that the 12 percent VAT rate would only apply to luxury goods subject to the luxury goods sales tax (PPnBM), while other goods and services would remain taxed at 11 percent.

The government’s latest review of the VAT policy reflects its broader effort to balance fiscal stability, tax reform, and economic inclusivity, as it seeks to boost growth while maintaining prudent public finances.