Indonesia’s fiscal policy in 2025 placed a strong emphasis on tax expenditure as a tool to support both households and businesses. The government reported Rp 530.3 trillion in tax expenditure, a modest increase from the previous year, reflecting its dual role of revenue collection and economic stimulus. This approach highlights how tax incentives are being used to strengthen purchasing power, sustain small businesses, and attract investment.
Key Facts & Background
- Total Tax Expenditure (2025):
- Rp 530.3 trillion, a 2.23% increase compared to 2024.
- Allocated through tax exemptions, customs relief, and excise incentives.
- Distribution of Benefits:
- Households: Rp 292.7 trillion (55.2%), including:
- VAT exemption on basic goods: Rp 77.3 trillion.
- Education services: Rp 25.3 trillion.
- Health services: Rp 15.1 trillion.
- UMKM: Rp 96.4 trillion (18.2%), aimed at maintaining competitiveness of small businesses.
- Investment Climate: Rp 84.3 trillion (15.9%), including tax holidays and allowances worth Rp 7.1 trillion.
- Other Business Sectors: Rp 56.9 trillion (10.7%), supporting operational needs.
- Households: Rp 292.7 trillion (55.2%), including:
- Customs Incentives:
- Increased by 10% to Rp 40.4 trillion.
- Key allocations:
- Bonded zones: Rp 27.5 trillion in import duty suspension.
- Special Economic Zones (SEZ): Rp 3.8 trillion in duty exemptions.
- Oil, gas, and geothermal sector: Rp 271.7 billion in capital goods import relief.
- Policy Context:
- The Ministry of Finance emphasized that tax and customs authorities not only collect revenue but also provide incentives by waiving obligations for strategic sectors.
- Majority of benefits went to households, countering perceptions that tax incentives primarily favor large corporations.
Strategic Insights
Indonesia’s tax expenditure strategy in 2025 reflects a deliberate balance between social protection and economic competitiveness. By directing more than half of the benefits to households, the government reinforced its commitment to safeguarding purchasing power, particularly through exemptions on essential goods, education, and healthcare. This allocation is significant because it directly supports consumption, which remains a key driver of Indonesia’s economic growth.
The substantial support for UMKM demonstrates recognition of their role as the backbone of the economy. Tax relief for small businesses helps sustain employment and local economic activity, ensuring that growth is more inclusive. At the same time, incentives for investment, such as tax holidays and allowances, signal Indonesia’s determination to attract both domestic and foreign capital. These measures are crucial for financing infrastructure, expanding industrial capacity, and integrating into global value chains.
Customs incentives, particularly in bonded zones and special economic areas, highlight the government’s focus on strengthening manufacturing and export competitiveness. By reducing import costs for raw materials and capital goods, Indonesia aims to enhance industrial productivity and energy resilience. This approach aligns with broader efforts to diversify the economy and reduce reliance on commodity exports.
The modest increase in overall tax expenditure compared to the previous year suggests a cautious but steady fiscal stance. While the government continues to provide relief and incentives, it also seeks to maintain fiscal sustainability. The challenge lies in ensuring that these expenditures translate into tangible outcomes—higher consumption, stronger investment flows, and improved competitiveness—without undermining revenue collection.