In accordance with Article 7 Paragraph 1 of Taxation Harmonization Law, the Government will increase VAT rate from 10 percent to 11 percent as of April 1, 2022. The increase in VAT rate will also continue to 12 percent no later than January 2025.
The increase in VAT rate was recognized by the Head of the Fiscal Policy Agency of the Ministry of Finance, Febrio Kacaribu.
"VAT rate will increase from 10 percent to 11 percent," said Febrio. He assessed that the impact of VAT rate increase would be minimal. He also advised the public not to worry about the impact of VAT rate increase on inflation.
According to the Director of the Tax Research Institute, Prianto Budi Saptono, the policy of increasing VAT rate is a win-win solution to optimize state revenues. An increase of 10 to 11 percent is considered not too significant.
However, not everyone responded positively to this policy. As stated by the Executive Director of the Institute for Development of Economics and Finance, Ahmad Tauhid, consumers are expected to bear greater costs from the increase in VAT rates and it will trigger higher inflation. He said that the increase in product selling prices and inflation will be one of the challenges in the economic recovery process during the ongoing pandemic, because it will reduce people's purchasing power.
Ahmad further explained, for the business sector, the increase in VAT rate will add burden to the company. This increase does seem small, only 1 percent. However, if it is accumulated with company transactions, the nominal will be significant.
