Potential Impact on Tax Revenue: Government's Caution Regarding BI Rate Hike

JAKARTA. Bank Indonesia's decision to raise its benchmark interest rate to 6.25% is considered to have an impact on tax revenue.

For information, previously Bank Indonesia (BI) has held the benchmark interest rate at 6% since October 2023. This means that the BI Rate has remained at the same level for six months.

Quoting Antaranews.com, the concern about the impact of the BI rate was conveyed by Minister Sri Mulyani when stating the results of the Financial System Stability Committee (KSSK) meeting in Jakarta.

According to Sri Mulyani, the increase in the BI rate is one of the dynamics that occurred after the first quarter. As for the first quarter of 2024, tax revenue was still supported by revenue from Value Added Tax (VAT).

VAT revenue in the first quarter on a gross basis grew 5.8%. However, due to high restitution, net domestic VAT revenue contracted 23.8%.

Overall, tax revenue until the end of March 2024 reached IDR 393.91 trillion. This amount is equivalent to 19.81% of the target set by the government in the 2024 State Budget (APBN).

Read: Up to Q3, Tax Revenue Contracted 8.9%

Meanwhile, when compared to the realization of tax revenue in the same period in 2023, this figure decreased by 8.9%. To anticipate the implications of the BI Rate increase on tax revenue, the government plans to prepare a number of strategies. 

Among them are the cost of funds financing strategy that has increased, as well as prudent management of the rupiah exchange rate.

Previously, the BI Rate hike was intended to strengthen the stability of the Rupiah exchange rate from the impact of worsening global risks. In addition, the monetary authority also reasoned that its decision was made as a pre-emptive and forward-looking step to ensure inflation remains within the target of 2.5±1% in 2024 and 2025. (ASP/KEN)