Jakarta. Finance Minister Purbaya Yudhi Sadewa signaled on Tuesday that the government is unlikely to reduce the value-added tax (VAT) rate, warning that each percentage-point cut could cost the state as much as Rp 70 trillion ($4.2 billion) in potential revenue.

The government raised the VAT rate by one point to 11 percent last year. Under existing law, the rate was set to increase again to 12 percent this year, but President Prabowo Subianto decided to limit the higher rate only to luxury goods.

Business associations have since urged the government to lower VAT to 10 percent to stimulate consumer spending and improve the business climate, which they argue could help accelerate Indonesia’s economic growth.

“Before entering government, I used to say, ‘Just lower it to 8 percent.’ But after becoming finance minister, I realized every 1 percentage point cut means losing Rp 70 trillion in state revenue,” Purbaya said during a meeting with economists in Jakarta.

He explained that his current priority is to improve the country’s revenue system, including taxation and customs collection, before considering any rate adjustments. Purbaya said he would evaluate the fiscal impact of these reforms through the second quarter of 2026 before making further decisions.

“By the end of the first quarter, I should have a clearer picture, and from there, I can measure real revenue potential and its impact on economic growth,” he said.

The minister noted that while VAT adjustment plans remain “on paper,” he intends to proceed cautiously before implementing any major fiscal changes.

“I’ve only been in office for two months, so I don’t yet have a full picture of how things will look by year-end,” he said. “Even though I might seem like a cowboy, I’m actually stingy and cautious -- one wrong move, and the deficit could exceed 3 percent.”

Earlier this month, Purbaya floated the possibility of a temporary VAT reduction to protect household purchasing power amid persistent economic headwinds.

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