The Center of Economic and Law Studies (CELIOS) has recommended that the government take bold and strategic measures to revive the economy while also boosting state revenue.

One proposed step is to reduce the Value-Added Tax (VAT) rate from its current level of 11% to 8%.

According to CELIOS, lowering the Value-Added Tax (VAT) rate is a fiscal policy whereby the government decreases the percentage of VAT levied on the consumption of goods and services. VAT itself is an indirect tax applied at each stage of the production and distribution chain, ultimately borne by the final consumer.

“Cutting the VAT rate is not merely a populist move that sacrifices short-term state revenue; it should instead be used as a momentum to overhaul the tax structure towards greater balance. This policy represents a long-term investment aimed at restoring household consumption power, which has been under pressure due to economic contraction,” explained CELIOS Fiscal Policy Director Media Wahyudi in a discussion on Tuesday (Aug 12, 2025).

CELIOS believes that reducing the VAT rate will strengthen household purchasing power, particularly among lower-middle-income groups, which are the main drivers of domestic consumption.

“The potential indirect net tax revenue from lowering the VAT rate is estimated at Rp1 trillion per year,” he added.