Finance Minister Sri Mulyani Indrawati has decided to increase Value Added Tax (VAT) from 10 to 11 percent, taking effect from 1st April 2022.
The increase is contained in law number 7 of 2021 concerning the harmonisation of tax regulations (HPP). Later, VAT is planned to increase to 12 percent no later than 2025.
Head of the Fiscal Policy Agency of the Finance Ministry Febrio Natan Kacaribu emphasised that the VAT increase would not have a major impact on inflation. Thus, the process of economic recovery will not be disrupted.
“If we look at the increase in VAT rates from 10 to 11 percent, we have estimated that the impact on inflation will still be minimal,” he said at a press conference.
Many countries experience a spike in inflation in the midst of an economic recovery process. For example, inflation in the US is more than 7 percent and has reached its highest level for 40 years.
An increase in inflation that is not in line with a strong economic recovery has certainly made many countries, both developed and developing, respond with monetary policy shifts such as an increase in interest rates. However, Febrio emphasised that Indonesia’s inflation rate is still very controlled even with the increase in VAT.
“There is no need to worry about the impact of the VAT increase on inflation. So far, inflation is still under control,” he claimed.
However, this explains that there is another matter that the government will be wary of regarding inflation, namely the increase in world food prices. This is closely monitored by the government so as not to put pressure on domestic inflation.
“What we need to monitor now is the upward trend in world food prices,” he concluded.