Fuelling the Recovery: How India’s path from fuel subsidies to taxes can help Indonesia

The document analyzes the fiscal challenges facing Indonesia, specifically its low tax-to-GDP ratio and the burden of fuel subsidies. It uses India's experience—where gasoline and diesel subsidies were phased out and replaced by flexible excise duties—as a blueprint for Indonesia. The authors recommend that Indonesia implement a fixed fuel tax to raise revenue for social programs and pandemic recovery, suggesting that such a measure is more politically viable in the short term than immediate subsidy elimination.

• Indonesia faces significant fiscal pressure due to a low tax-to-GDP ratio, which was 11.9% in 2018 and fell below 8% in 2020 following the COVID-19 pandemic.
• India successfully transitioned from high transport fuel subsidies to a regime of relatively high taxes, using these revenues to fund its COVID-19 response.
• India's fuel tax increases during the pandemic generated an estimated USD 19.4 billion in nine months, representing 7% of the Atma Nirbhar Bharat special economic package.
• Indonesia currently employs a contradictory system where it both taxes and subsidizes gasoline and diesel; the 15% tax rate is offset by price subsidies that lead to losses for the state-owned oil company PT Pertamina.
• A proposed tax of IDR 500 per litre for gasoline and diesel in Indonesia would generate approximately IDR 31 trillion (USD 2.2 billion) annually, which is about 2% of current government revenue.
• The document identifies key political economy lessons from India, including the benefit of removing subsidies during periods of low international oil prices and the use of expert inquiries to provide transparent endorsement for liberalization.
• The authors recommend that Indonesia implement fuel taxes simultaneously with subsidy reform rather than waiting for the latter to be completed, as this can reduce consumer impact and defuse protests.

APA

Laan, T., Suharsono, A., & Viswanathan, B. (2021). Fuelling the Recovery: How India’s path from fuel subsidies to taxes can help Indonesia. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-04/fuelling-recovery-india-subsidies-help-indonesia.pdf

Chicago

Laan, Tara, Anissa Suharsono, and Balasubramanian Viswanathan. Fuelling the Recovery: How India’s path from fuel subsidies to taxes can help Indonesia. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-04/fuelling-recovery-india-subsidies-help-indonesia.pdf.

Wikipedia

{{cite report |last1=Laan |first1=Tara |last2=Suharsono |first2=Anissa |last3=Viswanathan |first3=Balasubramanian |title=Fuelling the Recovery: How India’s path from fuel subsidies to taxes can help Indonesia |publisher=International Institute for Sustainable Development |date=April 2021 |url=https://www.iisd.org/system/files/2021-04/fuelling-recovery-india-subsidies-help-indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{laan2021fuelling, author = {Laan, Tara and Suharsono, Anissa and Viswanathan, Balasubramanian}, title = {{Fuelling the Recovery: How India’s path from fuel subsidies to taxes can help Indonesia}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = apr, url = {https://www.iisd.org/system/files/2021-04/fuelling-recovery-india-subsidies-help-indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }