VAT To 12 Percent In 2025 Expected To Increase Inflation By 0.2 Percent

JAKARTA - The Ministry of Finance (Kemenkeu) revealed that the increase in Value Added Tax (VAT) rates to 12 percent by 2025 will have an impact on inflation by 0.2 percent.

The increase in VAT rates is 12 percent in 2025 based on Law Number 7 of 2022 concerning Harmonization of Tax Regulations.

In the Law on Harmonization of Tax Regulations Article 7 it is stated that the VAT rate of 11 percent will take effect on April 1, 2022. Meanwhile, the VAT rate of 12 percent will take effect no later than January 1, 2025.

Head of the Fiscal Policy Agency (BKF) of the Ministry of Finance (Kemenkeu) Febrio Nathan Kacaribu said that currently inflation is at a low level, namely 1.6 percent with an increase in VAT rates to 12 percent by 2025 which is expected to increase by 0.2 percent to inflation.

"Current inflation is low at 1.6 percent. The impact of the increase in VAT to 12 percent is 0.2 percent. Inflation will remain low according to the 2025 State Revenue and Expenditure Budget (APBN) target at 1.5 percent to 3.5 percent," said Febrio in his official statement, quoted on Sunday, December 22.

Febrio is optimistic that the impact of the 12 percent increase in VAT on economic growth will not have a significant impact and economic growth in 2024 will remain above 5 percent.

Meanwhile, Febrio said that by 2025, the government is targeting economic growth to reach 5.2 percent according to the target in the APBN.

In addition, Febrio explained that to protect people's purchasing power from the potential increase in VAT, the government has provided several stimulus packages, namely, food assistance, electricity discounts, income tax exemption (PPh) for a year for workers in the textile, clothing, footwear and furniture sectors, as well as exemption from VAT for the purchase of houses.