Jakarta. Indonesia should treat taxes as a tool to support economic growth rather than the main driver of the economy, a leading retail industry figure said, cautioning that higher tax pressure could weaken consumer spending if not matched by stronger industrial productivity.

Roy Mandey, founder and chairman of the Affiliation Global Retail Association (AGRA), said economic growth should be led by industry, manufacturing and the real sector, with taxes playing a supporting role.

“Taxes are meant to be a catalyst, not the locomotive,” Roy said on Wednesday after speaking at B-Universe Media Holdings' The Forum at Hotel Mulia in Jakarta. “Growth does not happen simply because taxes increase. What truly drives the economy is industrial activity and the real sector.”

Indonesia’s economy grew 5.11% in 2025, improving on the previous year but missing the government’s 5.2% target, data from the Central Statistics Agency (BPS) showed.

Growth accelerated from 5.03% in 2024, supported by steady household spending, government spending and investment. GDP per capita rose to Rp 83.7 million, or about $5,083, up from Rp 78.6 million in 2024.

Roy said tax reform should prioritize simplification and effectiveness, rather than focusing solely on meeting higher revenue targets. He warned that policies aimed at boosting tax collection without improving productivity could push up prices and reduce household purchasing power.

“Price stability and supply chain integration need to come first,” he said. “If taxes are raised before the economy is ready, consumers will not be able to absorb the impact.”

He pointed to Vietnam as an example, noting that the country recorded economic growth of around 8.2% by using tax incentives to attract foreign direct investment (FDI). Vietnam has offered long-term tax holidays and reduced tax rates during early stages of investment, allowing industries to grow before higher taxes are applied.

Indonesia, Roy said, should avoid relying too heavily on traditional taxes such as income tax and value-added tax. Instead, he urged the government to expand the tax base to include new areas such as the digital economy, the informal or “shadow” economy, carbon taxes and crypto-related activity.

“Don’t wait until industries are already established before designing the tax framework,” Roy said.

Roy also criticized the government’s public communication on its new Core Tax Administration System (CTAS), saying it's too complicated for many Indonesians, particularly small business owners and communities outside major cities.

“People don’t understand these terms,” he said. “We need grassroots-level tax education, not just technical systems.”

Looking ahead, Roy said tax policy should focus on building public trust through better education, transparency and firm law enforcement against corruption within the tax system.

“People must believe that the taxes they pay are used properly for the country,” he said.

Indonesia closed 2025 with a wider state budget deficit as the government maintained fiscal support amid global economic uncertainty. The deficit reached Rp 695.1 trillion, equivalent to 2.92% of gross domestic product, remaining within the country’s legal limit.

State revenue totaled Rp 2.75 quadrillion, while spending rose to Rp 3.45 quadrillion. Taxes and customs duties generated Rp 2.21 quadrillion, including Rp 1.92 quadrillion in tax receipts, about 87.6% of the full-year target.