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December 20, 2024 | 09:11 pm
TEMPO.CO, Jakarta - On January 1, 2025, Indonesia’s Value-Added Tax or VAT will increase from 11% to 12%. The official announcement was made on December 16, 2024, in accordance with Law Number 7 of 2021 on the Harmonization of Tax Regulations (UU HPP).
The breaking news quickly gained the nation’s attention, as the high figure positions Indonesia as the country with the highest VAT rate in ASEAN countries, alongside the Philippines.
To understand in a broader context, it is useful to examine some aspects of VAT. From the definition to the revelation of the highest VAT rate in the world, this article will guide you to learn more about VAT, citing GVC, World Population Review, and Investopedia.
What is VAT?
Investopedia defines value-added tax, or VAT, as a payable consumption tax applied to both goods and services at each stage of the supply chain where value is added.
This tax is levied from the initial production of goods and services up to the point of sale. The tax’s burden ultimately rests on the consumer, even though it is paid by businesses at each stage of the supply chain.
The VAT rates may vary from country to country, and some countries do not levy VAT at all.
Advantages of VAT
The application of VAT could potentially bring a number of benefits. In essence, VAT would simplify the tax system, improve the efficiency of the tax administration, and make tax avoidance more difficult by taxing all goods sold.
In addition, as citizens would be taxed on consumption rather than income, it could potentially encourage people to work and save more. It also provides a stable and reliable source of revenue for the government.
Disadvantages of VAT
Despite its advantages, there are several drawbacks to the implementation of VAT. The main concerns include increased costs for businesses and higher prices for consumers.
As VAT requires accounting at every stage of the sales process, businesses face added complexity, which ultimately leads to higher operational costs. These increased costs are often passed down the supply chain, resulting in higher prices for consumers.
Countries with the Highest VAT Rates
Taking the top spot, Hungary has the highest VAT rate in the world at 27%. Dominated by European countries, the complete list is as follows:
Hungary - 27%
Croatia - 25%
Denmark - 25%
Sweden - 25%
Norway - 25%
Finland - 24%
Greece - 24%
Iceland - 24%
Ireland - 23%
Poland - 23%
Countries with the Lowest VAT Rates
Timor Leste has the lowest VAT rate in the world, with a standard VAT rate of 2.5%. Check out the full list below:
Timor Leste - 2.5%
Andorra - 4.5%
Jersey - 5%
Oman - 5%
United Arab Emirates - 5%
Taiwan - 5%
Canada - 5%
Panama - 7%
Thailand - 7%
Nigeria - 7.5%
Although Indonesia does not appear on any of these lists, neither the highest nor the lowest, it actually takes the top spot in the ASEAN countries ranking.
Editor’s Choice: Comparison of VAT Rates in Southeast Asia, Is Indonesia the Highest?
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