Indonesia’s GDP to reduce by $1.3 bln due to VAT hike
The planned increase in Indonesia’s value-added tax (VAT) rate from 11% to 12% could reduce the country's GDP by IDR 21 trillion ($1.3 billion), economists warned.
A customer at the store. Photo courtesy of Bangkok Post.
Rizal Taufikurahman, an analyst at the Institute for Development of Economics and Finance (Indef), noted that the VAT increase would weaken purchasing power, dampen public consumption, and slow job creation. In addition, it could undermine Indonesia’s competitiveness and exports.
Jahen Rezki, an economist from the University of Indonesia, echoed these concerns, highlighting that the VAT hike could exacerbate the ongoing slowdown in economic growth.
Indonesia’s economic expansion has already decelerated, with growth falling to 4.95% in the third quarter of 2024 from 5.05% in the previous quarter.
The Indonesian Government plans to enforce the VAT increase starting from January 1, 2025, mainly covering luxury goods due to broad public pushback.
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