12 Percent VAT Is Considered To Increase State Revenue By IDR 75 Trillion

Rupiah (Photo: Antara)

JAKARTA - Economist Bright Institute Awalil Rizky projects that the 12 percent Value Added Tax (VAT) rate will increase state revenue by around Rp75 trillion.

However, this amount is still not enough to close the gap with the tax revenue target in the 2025 State Budget which is set at IDR 2,189.3 trillion, or grew 13.9 percent from the 2024 outlook.

"Judging from the government's difficulty in meeting the 2025 APBN tax revenue target, the implementation of the VAT rate increase (12 percent) is almost certainly executed, because there is extraordinary political pressure," Awil said quoting Antara.

Awalil views this policy as an almost sure step considering the Government's difficulty in achieving the tax revenue target. The increase in VAT is believed to have a direct impact on public inflation and purchasing power. Awalil reminded the experience in 2022 when VAT was increased from 10 percent to 11 percent, there was an inflation spike at that time reaching 0.95 percent in one month.

He is also worried about the impact on the production sector, given the potential for crowding out effects that limit public and private funds for consumption and investment. However, Indonesia's VAT rates are still lower than the global average of 15.4 percent, but are the highest in ASEAN.

In addition to the increase in VAT, the government is also considering tax amnesty volume III. Based on the Bright Institute calculation, this program has the potential to increase revenues of up to Rp80 trillion, so that it can boost tax revenues to Rp1,246 trillion.

However, Awalil reminded that the tax amnesty program should not only focus on receiving the ransom, but also be directed to improve the tax base.

"Meanwhile, the tax amnesty is very possible, considering that there is also a need. Even if it is not implemented in 2025, the 2026 tax amnesty will be carried out. Well, other steps that increase tax revenues have already been discussed with the public," he explained.

In addition to increasing VAT by 12 percent and tax amnesty, Awalil mentioned several other strategies that are currently being discussed to increase tax revenues. Among them are the legally decided execution of tax collection, extracting tax potential from the underground economy, strengthening supervision of digital transactions, and improving the implementation of tax provisions.

The increase in VAT by 12 percent and the implementation of tax amnesty volume III certainly have opportunities to increase state revenue. However, the government needs to consider its impact on people's purchasing power, inflation, and economic stability.

"Although the tax revenue target is important, the policies taken must remain in favor of the community and not sacrifice economic growth in the long term," he explained.