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VAT hike ‘could backfire’, posing threat for state revenue
The plan to quickly generate additional income for the state comes at the wrong time and alternative revenue streams should be considered instead, experts say.
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A taxpayer takes a photo of the guidelines for online taxation services on Nov. 20, 2023, at a counter at the Kebayoran Baru 1 branch of the tax office in South Jakarta. (Kompas/Priyombodo)
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ncreasing the value-added tax (VAT) this year could threaten state revenue and set back efforts to improve the tax ratio in Indonesia, experts say, pouring cold water on the government’s plan.
The researchers urge policymakers to consider the broader implications of raising the principal consumption tax rate by one percentage point to 12 percent, arguing the attempt to generate instant state revenue comes at the wrong time.
“Our economy is currently not in good shape,” Institute for Development of Economics and Finance (Indef) researcher Abdul Manap Pulungan told The Jakarta Post on Tuesday. “If we go on [with the plan], it might backfire.”
While a VAT hike promises an immediate boost for state revenue, it can weigh on economic activity by increasing costs for producers and consumers of goods and services, especially when the overall economy is weak.
A levy on economic activity
“Increasing the VAT might not translate into a higher tax ratio if GDP [gross domestic product] decreases because of slower consumer spending,” Abdul explained.
Indonesia’s economy expanded 5.05 percent in 2023, slightly above government projections but down from 5.3 percent in 2022, according to Statistics Indonesia (BPS) data.
