Purbaya Rules Out VAT Cut and Ends ‘Burden Sharing’ Scheme with Bank Indonesia
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JAKARTA, Investortrust.id — Finance Minister Purbaya Yudhi Sadewa has ruled out both a near-term cut in Value-Added Tax (VAT) and any continuation of the ‘burden sharing’ scheme with Bank Indonesia (BI), stressing the need to maintain fiscal discipline and institutional independence between monetary and fiscal authorities.
Speaking at the 2025 Sarasehan 100 Ekonom Indonesia organized by the Institute for Development of Economics and Finance (INDEF) in Jakarta on Tuesday, Oct 28, 2025, Purbaya said a 1% VAT reduction would slash state revenue by Rp 70 trillion, while continuing the pandemic-era burden sharing could blur the separation between fiscal and monetary policy.
“Each 1% reduction would cost me Rp 70 trillion in revenue. That’s quite a loss,” he said. “We also never requested a burden-sharing scheme because it removes the clear boundary between fiscal and monetary functions.”
He explained that although a burden-sharing agreement still formally exists between the government and BI, his ministry would refrain from invoking it again. “I will not use the scheme going forward, because fiscal and monetary policies must remain on their respective tracks,” he said.
The burden-sharing mechanism was introduced during the COVID-19 pandemic to share interest costs between the government and the central bank. BI had temporarily purchased government securities (SBN) in the primary market to support fiscal stimulus, while also assuming part of the interest burden.
However, under President Prabowo Subianto’s administration, BI is now restricted to buying Treasury Bills (SPN) for short-term liquidity management, while long-term government bonds may only be purchased in the secondary market.
Purbaya noted that the separation between fiscal and monetary policy is essential to safeguard central bank independence from political cycles. “Political terms are five years, but monetary policy decisions have long-term implications. That’s why the two must remain separate,” he said.
Meanwhile, Ramdan Denny Prakoso, Executive Director of BI’s Communication Department, clarified that the past burden-sharing formula was based on a proportional split of interest costs on 10-year government bonds after accounting for government fund placements.
“The result is that half of the cost was borne by the government and half by Bank Indonesia,” Denny explained. He added that BI compensated the government by paying additional interest on state accounts held at the central bank, simulating a roughly equal burden of 2.15% each between the two sides.
Purbaya reaffirmed that fiscal flexibility must not compromise prudence. “Even though I want to be flexible, I can’t act recklessly. I’m frugal and careful—if revenue falls too much, the deficit could exceed 3%,” he said, referring to Indonesia’s statutory deficit ceiling.
He added that the Ministry of Finance would focus on strengthening tax and excise collection systems over the next two years to improve accuracy in estimating fiscal capacity. “By the end of the first quarter of 2025, we’ll have a clearer picture of our real potential,” he said.