Jakarta. Chief Investment Minister Luhut Binsar Pandjaitan announced that the government will restrict subsidized fuel purchases starting August 17, the nation's Independence Day. This measure aims to reduce the state’s expenditure on fuel subsidies.

“We hope to start on August 17. Those who are not entitled to subsidies will see a reduction,” Luhut said on his Instagram account, Wednesday.

Luhut explained that state-owned oil and gas company Pertamina is currently preparing for the implementation of these restrictions. "Pertamina is now making preparations," he said, without elaborating on the details.

Reducing the use of subsidized fuel could potentially have positive implications for public health by decreasing cases of upper respiratory tract infections and saving up to Rp 38 trillion in additional payments to the national health insurance BPJS.

"We're addressing many inefficiencies in the country, gradually fixing them," stated Luhut, emphasizing the broader health and financial benefits of reducing reliance on subsidized fuels.

Efforts to mitigate air pollution include transitioning to bioethanol to replace gasoline. Currently, subsidized fuels contain sulfur levels of 550 parts per million (PPM).

"We're promoting bioethanol to replace gasoline to swiftly reduce air pollution. Current sulfur levels are at 500 PPM. We aim to bring it down to 50 PPM. Pertamina is currently working on this. If successful, it could lead to further savings," explained Luhut.

He added that the restriction on subsidized fuel is intended to anticipate a budget deficit in the 2024 state budget, which is projected to exceed the target.

“This situation arises as state revenues are projected to fall short of the target. The decline in revenue is mainly due to the sharp drop in corporate income tax from commodity-based companies, affected by the steep decline in commodity prices,” Luhut explained.

The government also plans to reduce its dependency on specific commodity revenues in corporate income tax (PPh). Many palm oil companies, for instance, lack a Taxpayer Identification Number (NPWP), resulting in incomplete tax collections.

Previously, Finance Minister Sri Mulyani Indrawati reported that state revenues by the end of the year are estimated to reach Rp 2,802.5 trillion, a 0.7 percent increase compared to 2023. Meanwhile, state expenditures are projected at Rp 3,412.2 trillion, a 9.3 percent rise from last year and 102.6 percent of the 2024 state budget target.

“With this outlook, we project a 2024 state budget deficit of Rp 609.7 trillion, or 2.7 percent of GDP,” Sri Mulyani stated in a recent working meeting with the House of Representatives’ Budget Committee.

As part of the 2025 Macro Economic Framework and Fiscal Policy Principles, the government aims to reduce subsidized fuel consumption, such as Pertalite and subsidized diesel, by 17.8 million kiloliters in 2025.

The government disbursed Rp 42.9 trillion in energy subsidies for fuel and 3-kg liquefied petroleum gas (LPG) canisters in the first half of 2024. Fuel subsidies amounted to Rp 8.7 trillion, while subsidies for 3-kg gas canisters totaled Rp 34.2 trillion.

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