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December 17, 2024 | 02:24 pm
TEMPO.CO, Jakarta - The government's decision to increase the value-added tax (VAT) rate to 12 percent beginning next year has drawn protests from the public as it is feared to further burden the economy. In response, Finance Minister Sri Mulyani Indrawati said that Indonesia’s VAT rate remains relatively low compared to other countries.
“The VAT rate in Indonesia is still relatively low compared to many countries around the world, including emerging economies and G20 nations,” Sri said during a press conference on the Economic Policy Package held at the Office of the Coordinating Ministry for Economic Affairs in Central Jakarta on Monday, December 16, 2024.
She cited data from the International Monetary Fund (IMF) and a global tax summary by PwC, a leading accounting firm, to support her statement.
According to the data, Indonesia's current 11% VAT rate, which has been in effect since April 1, 2022, places it alongside countries such as Canada with federal and provincial rates ranging from 5% to 15%, Australia, Japan, South Korea, Malaysia, and Vietnam. Recently, Vietnam extended its VAT rate cut from 10% to 8%, with this reduced rate in effect until June 30, 2025.
Furthermore, the minister compared Indonesia's tax ratio to other countries. Indonesia's tax ratio currently stands at 10.4% of GDP, lower than countries like Brazil, which has a 17% VAT rate and a tax ratio of 24.67%, and South Africa, with a 15% VAT rate and a tax ratio of 21.4%.
Other examples include India with an 18% VAT rate and a tax ratio of 17.3%, the Philippines with a 12% VAT rate and a tax ratio of 15.6%, Turkiye with a 20% VAT rate and a tax ratio of 16%, and Mexico with a 16% VAT rate and a tax ratio of 14.46%.
“Indonesia's current VAT rate is 11%, our tax ratio remains at 10.4%. This highlights the areas where we need to focus on improving our tax revenue collection,” Sri explained. “It is not about increasing rates to the level of other countries, but rather about identifying Indonesia’s position.”
The former director of the World Bank emphasized that the government has exercised caution in implementing VAT policy changes. Learning from the previous VAT increase from 10% to 11%, she recalled, the Indonesian economy was relatively stable, with positive indicators in various sectors. Following the 11% VAT increase, the government implemented various stimulus measures to mitigate any potential negative impacts.
“In 2023, we witnessed a decline in commodity prices, which has continued into 2024. We have also seen an increase in the number of formal workers and double-digit growth in Income Tax Article 21 withholdings, and inflation has remained relatively low,” Sri Mulyani outlined.
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