Jakarta – The Indonesian government has confirmed that the increase in the Value Added Tax (VAT) rate from 11 percent to 12 percent, which will take effect on January 1, 2025, will not have a significant impact on inflation. This was stated by the Acting Deputy for Coordination of Management and Development of State-Owned Enterprises, Coordinating Ministry for Economic Affairs, Ferry Irawan.
According to Ferry, the government has conducted a comprehensive calculation of the impact of the VAT increase on inflation. The results show that the new VAT rate only has the potential to increase inflation by around 0.3 percent, which is considered relatively small and will not have a significant impact on the national economy. “It’s minimal, relatively small,” said Ferry, referring to the projected inflationary impact of the VAT rate increase.
The government emphasized that the main components that have a major impact on inflation, such as food and electricity rates, will not be directly affected by changes in VAT rates. Food, for example, is one of the commodities that is exempt from VAT, or is subject to a zero percent VAT rate. Likewise, several other basic necessities, such as wheat flour, MinyaKita cooking oil, and industrial sugar, are still subject to a VAT rate of 11 percent, so there is no significant increase in the prices of these goods.
For the electricity sector, the State Electricity Company (PLN) has ensured that most of its customers will be exempted from VAT. The government will also continue to monitor inflation movements and conduct periodic mapping of the economic cycle. The government is committed to taking preventive measures if inflation shows an uncontrolled trend, one of which is by distributing food aid or electricity subsidies to maintain people’s purchasing power.
Ferry also explained that the government will prepare economic stimulus measures to maintain stable economic growth, especially in the first quarter of 2025. “We are preparing the encouragement, so that inflation is stable, economic growth can be maintained,” he added. The assistance is expected to provide a consumption boost for the middle class, which is the main driver of Indonesia’s economic growth.
Furthermore, the change in VAT rates is also in line with the government’s policy in re-regulating the list of goods and services subject to VAT rates. In Government Regulation (PP) Number 49 of 2022, the government has regulated which commodities will be subject to a 12 percent VAT rate, as well as other goods and services that will still receive a zero percent or 11 percent rate. More detailed regulations regarding this will soon be regulated through the PP and the Regulation of the Ministry of Finance, which are expected to be issued before January 2025.
Thus, even though the VAT increase will come into effect early next year, the government is confident that its impact on inflation will be controlled, and the Indonesian economy will remain on a stable growth path.
