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Indonesia Boosts Regional Transfers to Quell Tax Protests and Maintain Stability
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Indonesia’s Ministry of Finance and the house of Representatives’ Budget Committee have reached an agreement to increase regional transfers (TKD) in the 2026 state budget, responding to widespread public discontent over rising property taxes. The move aims to avert potential social unrest and address the financial strains faced by local governments.
The initial draft of the 2026 State Budget (RAPBN 2026) proposed a notable 24.7 percent decrease in TKD compared to 2025, igniting controversy across numerous regions.However, following negotiations, the allocation will now rise to Rp692.995 trillion (approximately US$39 billion),an increase of Rp43 trillion.
“regional transfers, which were originally set at Rp649.995 trillion, will now increase to Rp692.995 trillion,” stated the House Budget Committee Chairman during a hearing with the Finance Ministry on Thursday,September 18,2025. He explained that the adjustment was prompted by requests from various DPR commissions and acknowledged the previous proposed cut as a key factor driving up land and building tax (PBB) bills in several areas.
Addressing Local Government Finances
Finance Minister Purbaya Yudhi Sadewa emphasized that the revision also incorporated feedback from local governments. “this is to maintain short-term social and political stability in the regions,” the minister said, highlighting the government’s concern over potential unrest.
Recent months have seen a surge in complaints from residents regarding substantial increases in their PBB payments, with a particularly notable case emerging in Pati Regency, Central Java. These increases are directly linked to the financial pressures experienced by local administrations, according to economic analysts.
The link Between Reduced Transfers and Rising Taxes
According to an economist at Andalas University, the escalating PBB rates are a direct consequence of dwindling TKD allocations from the central government combined with increasing mandatory spending obligations. This combination has forced regional leaders to seek alternative revenue streams, with property taxes becoming an increasingly attractive option.
“Dwindling local cash reserves forced regional heads to raise PBB,” the economist explained, adding that public protests are justified, as citizens expect fiscal policies that are equitable and aligned with their economic realities. He cautioned that a failure to achieve this balance could erode public trust in local governments and possibly intensify social unrest. “The wave of protests against PBB hikes reflects social anxiety rooted in everyday economic realities,” he warned.
Impact on Citizens and Public services
the economist further pointed out that the increased PBB burden has not been accompanied by corresponding improvements in public services. This has resulted in a decline in household purchasing power, while essential infrastructure projects – such as road repairs and healthcare facilities – have seen limited progress. “
Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE) Indonesia, echoed these concerns, stating that limited fiscal capacity is a widespread issue among local governments throughout the country. “only a small number of regions have a sufficiently healthy fiscal capacity,” he noted, underscoring the systemic nature of the problem.
The increased allocation for regional transfers represents a crucial step towards addressing these financial challenges and mitigating the risk of further social unrest. However, sustained investment and improved fiscal
