Economist: The Increase In VAT To 12 Percent Will Trigger An Increase In Inflation

Illustration. (Photo: Doc. Antara)

JAKARTA - Head of Permata Bank Economist Josua Pardede said that the increase in Value Added Tax (VAT) from 11 percent to 12 percent could trigger an increase in domestic inflation.

"This year inflation is estimated to be around two percent, but next year inflation is projected to increase to 3.12 percent," said Josua at the 2025 Economic Outlook event by Permata Bank in Jakarta, quoted from Antara, Tuesday, December 3.

On the same occasion, Head of Macroeconomic and Financial Market Research at Permata Bank Faisal Rachman said that basically the increase in VAT could have a positive impact on state revenues, provided that the increase in state revenues should be returned to the public.

"If possible, it will be allocated again to sectors that increase the wheels of the economy. We can see that the increase in VAT is permissible, but the commitment is returned to the people for development and economic improvement," said Faisal.

However, he emphasized that the delay in VAT needs to be an option considered by the government, because currently the consumption of the community, which is the largest support for economic growth, is still in shock plus a decrease in the number of middle classes.

"We support the discourse to be postponed first. The middle class has not returned to a secure (safe) condition such as pre-COVID-19. If it has recovered, it can be done gradually," he said.

The Central Statistics Agency (BPS) reported that Indonesia's Consumer Price Index (IHK) inflation was 1.55 percent year on year (yoy) in November 2024, or sloping from October's achievement of 1.71 percent (yoy).

On a monthly basis, inflation in November 2024 was recorded at 0.30 percent month to month (mtm) or higher than October 2024 which was 0.08 percent (mtm).

Meanwhile, Chairman of the National Economic Council (DEN) Luhut Binsar Pandjaitan said that the government plans to postpone the increase in VAT rates to 12 percent which will initially be implemented on January 1, 2025.

According to Luhut, the implementation of the increase in VAT has been postponed because the government plans to provide stimulus or incentives first to the community through social assistance to the middle class.