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IEU-CEPA Becomes a New Growth Engine Amid Tax Shortfall Risks

Taxindo Prime Consulting
Wednesday, September 24, 2025 | 16:11 WIB
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IEU-CEPA Becomes a New Growth Engine Amid Tax Shortfall Risks
This economic update highlights the risks to Indonesia’s tax revenue performance and the government’s strategic steps: stimulating the economy through incentives while boosting optimism in trade through a new agreement.


To address the projected widening tax shortfall—expected to reach only 80–90% of the state budget (APBN) target—the government is taking a dual approach of enforcement and stimulus. Finance Minister Purbaya Yudhi Sadewa firmly demanded the settlement of Rp60 trillion in outstanding tax arrears, most of which come from the commodities sector. He stressed that these arrears must be paid within this week to optimize state revenue.

On the stimulus side, the government has extended the Value Added Tax (VAT) incentive—borne by the government—for home purchases priced up to Rp2 billion through 2026. This tax discount is intended to sustain household purchasing power and stimulate the property sector.
These domestic measures are being complemented by external strategies, as economists argue that Indonesia’s economy cannot realistically achieve 6% growth relying solely on domestic demand. Consequently, the government is pushing exports and investment as new growth drivers. This effort has been well received by producers, with the signing of the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA) fueling optimism of a 25% increase in furniture exports to Europe.


The policy mix reflects the urgent need to balance the state budget while identifying new engines of growth. The Rp60 trillion tax arrears collection effort signals strong enforcement of fiscal compliance, expected to partially offset the widening revenue shortfall. At the macroeconomic level, the extension of VAT discounts for housing purchases up to Rp2 billion underscores the government’s commitment to stabilizing the property market and domestic consumption. However, since high growth cannot be achieved without external drivers, the post-IEU-CEPA export optimism becomes critical. The agreement, projected to boost furniture exports to Europe by 25%, highlights Indonesia’s strategic shift toward international trade as a key growth pillar.


Overall, the developments of September 24, 2025 illustrate a proactive and pragmatic government responding to fiscal pressures with diversification strategies. The administration’s success will hinge on two fronts: the effectiveness of short-term tax arrears collection, and the long-term ability of the export sector to capitalize on the momentum from IEU-CEPA. Both are crucial to bridging revenue gaps and achieving sustainable growth amid limited domestic demand.



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