World Bank: VAT Rate Hike Shows Insignificant Effects

JAKARTA. A global financial institution, the World Bank, believes that the government's plan to increase the Value Added Tax (VAT) rate from 11% to 12% in 2025 will not significantly impact additional state revenue.  

In its report entitled Indonesia Economic Prospects (IEP), it views that the rate increase needs to be accompanied by other policies, to have an optimal impact on revenue.

Quoting cnbcIndonesia.com, the World Bank considers that the rate increase needs to be complemented by other policies, to broaden the tax base and increase compliance.

According to World Bank records, the efficiency ratio of VAT collection is only 0.5324 out of 1. This value is 0.17 points below the average ratio of countries in the region. 

Some policies that can be done include cutting the threshold for determining VAT-Registered Person, removing tax exemptions and improving audit mechanisms.

As for the medium term, the World Bank advises the government to improve access and availability of third-party data. The goal is to be able to track and verify income.

Previously, the government planned to increase the VAT rate from 11% to 12% by January 2025, as stipulated in Law Number 7 of 2021 concerning Harmonisation of Tax Regulations (HPP Law).

As for the implementation, Finance Minister Sri Mulyani will leave it to the new government, which will be led by the elected President and Vice President, Prabowo and Gibran. (ASP/KEN)