Economist Says 12 Percent VAT Increase Will Increase Indonesia's Tax Level Globally

JAKARTA - Bank Permata economist Josua Pardede assessed that the increase in Value Added Tax (VAT) rates to 12 percent in 2025 is a step that makes Indonesia's VAT rate comparable to the global average tax of 15 percent and in ASEAN countries.

In addition, Josua said, this increase is also expected to strengthen Indonesia's tax system and make it more attractive to investors, along with the government's efforts to increase state revenue and encourage economic growth.

"In the long term, the increase in tax revenue can contribute to the Vision of Indonesia 2045, which aims to make a developed country and one of the five largest economies in the world," he told VOI, Tuesday, November 26.

In addition, Josua said that the increase in VAT rates would significantly increase state revenues and make fiscal more able to fund infrastructure, education and health projects.

Josua also said that the increase in VAT is also expected to reduce the budget deficit and depend on debt, especially after government spending increased during the pandemic.

"VAT is easier to withdraw because it is recorded in all economic transactions, especially those related to consumption. As a result, tax administration becomes more efficient," he said.

Meanwhile, Josua explained that if the VAT increase policy was not implemented, there would be several consequences, such as the government would lose potential additional income, which could increase the budget deficit and limit fiscal space for productive spending.

According to him, infrastructure development, social programs, and other strategic investments can be hampered if state revenues are not sufficient to fund these needs.

In addition, Josua said this could cause the government's debt burden and long-term fiscal risk to increase because the government may have to rely more on loans to cover the deficit.

"Finally, non-progressive tax reforms can slow down the improvement of fiscal structures and make Indonesia less competitive in the region," he concluded.