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Higher VAT rate comes into effect
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Finance Minister Sri Mulyani Indrawati (right) and Taxation Director General Suryo Utomo promote the new Harmonized Tax Law to the public and business associations in Nusa Dua, Bali on Nov. 19, 2021. (Finance Ministry/Tax office's public relation)
The government increased value added tax (VAT) on Friday as part of a tax reform introduced by the 2021 Harmonized Tax Law.
The Finance Ministry’s tax compliance expert, Yon Arsal, said the increase in VAT to 11 percent would not significantly affect inflation, which is expected to stay in the 2 to 4 percent range.
“The impact of this VAT increase is not too significant, it is still within the range of the state budget that we’re expecting,” he told reporters in an online media briefing on Friday.
Statistics Indonesia (BPS) reported on Friday that annual inflation stood at 1.2 percent in March. On a month-to-month basis, the consumer prices index (CPI) was up 0.37 percent in March, the highest since May 2019. Red chili, household fuel, gold jewelry and cooking oil were the largest contributors to March's monthly inflation, said BPS head Margo Yuwono.
“The impact [of the policy] will be limited because the increase is only 1 percent and essential goods are excluded,” Faisal Rachman, state-owned Bank Mandiri economist, said on Friday.
Staple foods, including rice, soybeans, meat and sugar are exempted from VAT.
Read also: VAT hike to go ahead as planned amid surging prices: Sri Mulyani
