p–ISSN: 2723 - 6609 e-ISSN: 2745-5254

Vol. 5, No. 8 August 2024 http://jist.publikasiindonesia.id/

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 8, August 2024 3608

Analysis of the Impact and Implications of the VAT Rate

Increase in Indonesia

Septia Mitha Caesaria

, Yusriyah Trinugrahini Mumpuni

, Efiearly Mayasha

Galuh Tresna Murti

Universitas Telkom, Indonesia

Email:

*Correspondence

ABSTRACT

Keywords: VAT rate,

VAT, tax rate increase.

This study aims to find out how the impact felt by the

community after the implementation of the VAT rate

increase policy on individuals who act as end consumers,

and business actors or MSMEs who act as distributors. The

method used in the study is a Systematic Literature Review

(SLR) from various studies on the impact and implications

of VAT rate increases in Indonesia. The results of the study

show that VAT affects the price of goods and services in the

market, increases production costs and selling prices, and

worsens inflation. However, the increase in VAT rates can

also increase government tax revenues, reduce the budget

deficit, and stabilize the country's fiscal condition. In

addition, the increase in VAT can affect consumer behaviour

and business investment, especially in the manufacturing,

trade, and service industry sectors.

Introduction

Indonesia's economy has undergone significant changes in recent years. Stable

economic growth and the expansion of sectors as the basis of the Indonesian economy

such as manufacturing, trade, and services, but Indonesia also experiences challenges

such as budget deficits, price fluctuations, and inflation are the main concerns of the

government (Sinambela, 2019). Minister of Finance, Sri Mulyani Indrawati stated that

state spending is still accelerating upward, noting that the realization of state spending in

2023 reached IDR 3,121.9 trillion, exceeding the 2023 State Budget allocation (102.0%

of the 2023 State Budget or 100.2% of Presidential Regulation 75/2023). This amount

increased by 0.8% from the realization in 2022 of IDR 3,096.3 trillion (Ministry of

Finance, 2024). To deal with these dynamics, fiscal policies need to be implemented to

achieve sustainable and inclusive economic development goals (Rita & Astuty, 2023).

One of the fiscal policies that is often used is the adjustment of the Value Added Tax

(VAT) rate which aims to increase state revenue and control consumption and investment.

The increase in the Value Added Tax (VAT) rate of 10 per cent to 11 per cent is active

on April 1, 2022 (Directorate General of Treasury, 2023). Currently, there is a discourse

Analysis of the Impact and Implications of the VAT Rate Increase in Indonesia

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 8, August 2024 3609

on changing the provisions of the Value Added Tax (VAT) rate to 12 per cent in 2025,

conveyed by Member of Commission XI of the House of Representatives of the Republic

of Indonesia Ecky Awal Mucharam that the increase in the Value Added Tax (VAT) rate

is contradictory to the current condition of people's purchasing power, the increase in the

VAT rate which was recently increased to 11% of people's purchasing power is reported

to have decreased significantly (Current Parliament - House of Representatives, 2024)

(Murti & Fabiansyah, 2023).

The policy of increasing the VAT rate has reaped pros and cons from various circles

of society. On the one hand, proponents of increasing the VAT rate argue that the move

is necessary to overcome the state budget deficit and strengthen the fiscal revenue base.

The increase in VAT rates is also considered to increase economic stability by controlling

inflation. (Liyana, 2021). On the other hand, the cons of the increase in VAT rates focus

on the level of people's purchasing power, especially for the lower middle economic

group. In addition, it will provide additional pressure on economic sectors that are

struggling to cope with global uncertainty and regulatory changes. (Kharisma, 2023). The

increase in VAT also has the potential to cause people to switch to shopping abroad due

to rising prices in the country. In addition, the increase in production and consumption

costs can result in a decline in the goods and services sector and a negative impact on

sales. The decline in productivity also has the potential to reduce labour absorption, which

in turn will reduce people's income and consumption (hukumonline.com, 2022).

Due to the complexity of economic issues and public policies, the government and

stakeholders need to carefully consider the policy changes made. Therefore, it is

necessary to analyze the impact and long-term implications of the policy to ensure that

the decisions taken will provide maximum benefits for the economy and the Indonesian

people as a whole. (Halomoan & Sitabuana, 2022).

Taxes are one of the most potential sources of state revenue. Taxes are expected to

drive the country's economy through capital participation in development and state-

owned enterprises. (Fajriana, 2023). As a result, taxes in a country can increase spending

on routine spending and capital goods that are affected by the private sector. Taxes, as

the main tool to support the state budget, must play a role that has many functions. The

government continues to strive to optimize tax revenues because there is a significant

increase in development needs and the country's economic problems that often occur.

This can be seen in various government regulations, policies, and decisions, such as by

optimizing laws and regulations regarding value-added tax and the basis for its

calculation. (Putri, 2022).

Value Added Tax (VAT), Income Tax (PPh), Land and Building Tax (PBB), and

Luxury Goods Sales Tax (PPnBM) are some of the types of tax sources generated by the

state. These funds also come from stamp duty, excise, import, and export. Income taxes

have made the greatest contribution to helping the state finance spending. However,

income tax is only imposed on certain taxpayers, namely those who are not taxable and

have income above their income can be made income tax taxpayers. The payment transfer

tax is also known as the amnesty tax imposed or delegated to another person.

Septia Mitha Caesaria, Yusriyah Trinugrahini Mumpuni, Efiearly Mayasha, Galuh Tresna Murti

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 8, August 2024 3610

Value Added Tax (VAT) is a consumption tax aimed at consumers who use these

goods and services based on the imposition of goods and services that are the object of

tax in the customs area. (Renata, Hidayat, & Kaniskha, 2016). The imposition of this tax

is aimed at the value of goods and services that are identified for circulation from

producers to consumers. The second largest tax expenditure, after Income Tax (PPh), is

the value-added tax, or VAT, which accounts for about 30% of tax revenue. Merchants

are the parties responsible for calculating, reporting, and accounting for VAT, while users

of the final product are the parties responsible for paying VAT. (Ridho, 2021).

The purpose of VAT is to encourage the country's economic growth, increase the

competitiveness of Indonesian-made products in the domestic market, ensure the

availability of goods exempt from VAT on the import and/or delivery of certain taxable

goods, and as a source of state revenue to finance various types of public expenditure.

Based on the Ministry of Finance's DJPB website, the provisions and objectives of Value

Added Tax (VAT) collected at the time of delivery of taxable goods (BKP) and/or taxable

services (JKP) include VAT rates, Taxable Goods (BKP), Taxable Services (JKP),

Taxable Entrepreneurs (PKP), and VAT exemption facilities.

Research Methods

The research method used is Systematic Literature Review (SLR), which is a means

to identify, evaluate, and interpret all available research that is relevant to a particular

research question, topic field, or phenomenon of interest (Kitchenham, 2007). There are

three steps carried out in this method, namely the planning stage, the review stage, and

the reporting stage. The type of data used in this study is secondary data obtained through

literature studies from various studies regarding the analysis of the impact and

implications of VAT rate increases in Indonesia from national journals available in the

Google Scholar database using the keywords VAT Rate, VAT, and Tax Rate Increase.

Results and Discussion

VAT is defined as a consumption tax imposed on the sale of goods and services

which is calculated as a percentage of the added value of a product or service. VAT is

collected by Individuals, Entities, and Government Taxpayers who have the status of

Taxable Entrepreneurs (PKP) and are levied at each stage of production or distribution

(Lintang, Majid, & Sholikhah, 2022). The source is the sale and purchase of taxable

goods/services (BKP/JKP) carried out by Taxable Entrepreneurs (PKP), as well as the

import of BKP and/or the use of Intangible JKP/BKP from outside the Customs Area

within the Customs Area. The following is an example of a discussion in the paragraph

for the article entitled "Analysis of the Impact and Implications of VAT Increase in

Indonesia":

The increase in the Value Added Tax (VAT) rate in Indonesia to 11% has caused

various implications for society and the economy. One of the implications is an increase

in production costs and prices of goods, which can then affect people's purchasing power.

The impact of the VAT increase can also worsen the purchasing power of the lower

Analysis of the Impact and Implications of the VAT Rate Increase in Indonesia

Jurnal Indonesia Sosial Teknologi, Vol. 5, No. 8, August 2024 3611

middle class, which has been affected by the Covid-19 pandemic. However, the

government has taken the right step by providing many VAT facilities for certain goods

or services, so that the impact on the community is considered to be limited. This VAT

facility, especially for the lower class, will minimize the impact of price increases on the

consumption of necessities and other goods (Lintang et al., 2022).

In recent years, the Indonesian government has experienced a significant increase

in VAT. This increase in VAT rates can affect various economic sectors, such as the

manufacturing industry, trade, and services. Import-based manufacturing industries, for

example, can be affected by the increase in import costs caused by the increase in VAT.

Meanwhile, the service sector, such as transportation and logistics, may experience an

increase in operational costs resulting from the increase in VAT. Therefore, the

government needs to monitor and supervise the impact of the VAT increase on various

economic sectors so as not to affect the stability of the national economy.

The increase in VAT in Indonesia can also affect domestic and foreign investment.

Domestic investment can be affected by the increase in production costs caused by the

increase in VAT, so it can affect economic growth. Meanwhile, foreign investment can

be affected by the increase in operational costs caused by the increase in VAT, which can

affect the level of investment security in Indonesia. Therefore, the government needs to

monitor and supervise the impact of the VAT increase on domestic and foreign

investment so as not to affect the stability of the national economy. The following is the

realization of VAT revenue obtained from the Indonesian Central Statistics Agency.

Figure 2 State Revenue Realization on VAT and PPnBM