Jakarta. The Indonesian government should consider lowering its value-added tax (VAT) rate to strengthen competitiveness in Southeast Asia and narrow the gap with Vietnam, which has posted its fastest economic growth in a decade, a retail industry leader said on Thursday.

Roy Nicholas Mandey, founder and chairman of the Affiliation of Global Retail Association (AGRA), said an ideal VAT rate would be 9 percent to serve as a tangible stimulus for household consumption -- the main driver of Indonesia’s economic growth.

“If we can make a breakthrough to bring VAT down to 9 percent, it would send a strong signal of the government’s commitment to domestic markets and consumer spending,” Roy said in an interview on Investor Market Today on BTV.

He noted that Indonesia’s current 11 percent VAT is relatively high compared to neighboring countries such as Singapore (9%), Vietnam (7–8%), and Thailand (7%). Lowering the rate, he argued, could boost both consumption and investment, helping Indonesia catch up with Vietnam’s strong momentum, after its economy grew 7.89 percent last year.

Roy stressed that the proposal is not a populist move but a “long-awaited, concrete solution” to strengthen purchasing power and revive the retail sector -- a key pillar of Indonesia’s domestic economy.

“The core issue in our economy is not production but purchasing power. When consumption rises, the entire economy follows,” he said.

He pointed out that household consumption accounts for more than half of Indonesia’s GDP, yet the retail sector remains sluggish. Despite busy shopping malls, most visitors come for dining and social activities rather than purchasing consumer goods.

“Look at the malls -- food and beverage outlets are packed, but very few people carry retail shopping bags. Even large discounts have a limited impact. This shows that purchasing power hasn’t fully recovered,” Roy explained.

He said the trend reflects lingering caution among consumers, who remain hesitant to spend on non-essential goods as incomes have not fully rebounded to pre-pandemic levels.

Earlier this week, Finance Minister Purbaya Yudhi Sadewa said the government was considering a possible VAT reduction to boost consumer spending.

“We will assess whether we can lower the VAT rate to support household purchasing power going forward. But we must study it carefully first,” Purbaya said.

He added that the government would evaluate tax revenue performance and broader economic indicators through the end of the year before making a decision.

“We’ll see how things stand by year-end -- how the economy performs and how much revenue we collect. It’s still too early to tell,” he said.

Under the Tax Regulation Harmonization Law, Indonesia’s VAT rate was originally set to rise gradually -- from 10 percent to 11 percent in 2022, and then 12 percent in 2025. However, amid public opposition to the planned increase, the government opted for a selective adjustment, applying the 12 percent rate only to luxury goods, while most goods and services remain taxed at 11 percent.