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Rupiah Falls Under Fiscal Pressure; Government Extends Housing VAT Discount While Reviewing Tobacco Excise

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Rupiah Falls Under Fiscal Pressure; Government Extends Housing VAT Discount While Reviewing Tobacco Excise
Indonesia’s economy is facing significant currency pressure, triggered by a combination of fiscal and monetary factors. Against this backdrop, public attention has turned to the causes of the Rupiah’s sharp depreciation and two key policies currently under government focus: property incentives and excise tariffs.

The Rupiah has experienced a steep decline, attributed to the dual impact of mounting fiscal pressure on the state budget (APBN) and suspected populist policies by Bank Indonesia (BI), which have weakened investor confidence. To counter the slowdown in domestic economic activity, the government plans to extend the 100% VAT discount for new home purchases until the end of 2026. This stimulus is aimed at sustaining growth momentum in the property sector.

On the fiscal and industrial policy front, the Ministry of Finance has come under the spotlight regarding the determination of 2026 tobacco excise tariffs. Finance Minister Purbaya Yudhi Sadewa emphasized that excise policy must be carefully designed so as not to “cripple domestic industry,” while also assuring that input from business players will be taken into account.

In addition, the electronic cigarette (vape) industry is pressing the Ministry of Finance to provide regulatory clarity on excise tariffs. The current uncertainty over retail prices (HJE) of e-cigarettes has hampered investment and business planning, prompting calls from the industry for a clear and consistent regulatory framework.

Recent developments highlight the government’s central dilemma: stimulating domestic growth amid fiscal and monetary pressures that are weakening the Rupiah. The currency’s sharp depreciation reflects eroding market confidence in fiscal stability, as well as concerns over populist interventions. In this context, the government has chosen to maintain domestic stimulus by extending the housing VAT discount.
Meanwhile, the excise sector has become a tug-of-war between the state’s need to increase revenue and the imperative to preserve industry sustainability, as underscored by Finance Minister Purbaya. Regulatory certainty regarding both conventional and electronic cigarette excise is now a critical factor in shaping future fiscal policy and business planning.

In light of current dynamics, government policy is shifting toward efforts to mitigate Rupiah depreciation. Key measures include signaling certainty on incentives through the extension of the housing VAT discount and reinforcing a fiscal stance that supports the sustainability of domestic industries. The success of stabilizing the exchange rate will depend heavily on how quickly and convincingly the government can ease market concerns about fiscal pressures and populist tendencies that are drawing investor scrutiny.



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