Heaptalk, Jakarta — The Indonesian government will implement a 12% value-added tax (VAT) policy effective January 1, 2025. Several types of goods will be granted VAT exemption and discounts. The rate increase will only apply to luxury goods.
The high VAT rate received a response from the World Bank. As reported on its official website on Wednesday (12/18), the World Bank stated that the high VAT policy indicates that Indonesia has not been able to reflect an increase in the tax ratio to economic activity or gross domestic product (GDP).
Another point of concern is Indonesia’s current VAT rate of 11%, which has a negative delta (difference with the tax ratio) of -0.6%. This position indicates that Indonesia’s tax ratio is still lower than the VAT imposed on the public.
In contrast, other countries such as Brazil, South Africa, and the Philippines, which have emerging market economies and large populations, appear to have positive deltas of 7.67%, 6.4%, and 3.61%, respectively.
“The large VAT gap in Indonesia is worsening and is higher than in some neighboring countries in the region. This is evident from the declining overall C-efficiency in the VAT system, which is the ratio between VAT revenue and final consumption,” wrote the World Bank.
Therefore, the World Bank suggests that Indonesia maintaining tax revenue above 15% of the country’s GDP is crucial for driving economic growth and reducing poverty. This threshold is essential for providing the country with the financial means necessary to make vital investments for the future and achieve sustainable economic development.
“In comparison, developed countries generally have much higher tax ratios. For example, the average ratio among members of the Organization for Economic Co-operation and Development (OECD) was recorded at 34.1% in 2021,” the World Bank concluded.