Indonesia Gets Huge Profits after Raising Value-Added Tax

VAT or PPn

Indonesia’s tax revenue this year has already exceeded the government’s target even before 2022 ends. One of the reasons is the increase in Value-Added Tax (VAT) by one percent since April 1.

It is known that value-added tax or VAT revenues have increased by IDR 51 trillion since the government imposed a rate increase on the tax, which was originally 10 percent to 11 percent.

This tax increase causes the Indonesian people to have to pay more for each of their consumption activities. However, this actually brings great benefits to the country.

Minister of Finance Sri Mulyani Indrawati explained that the increase in the VAT rate from the original 10 percent to 11 percent would also increase state revenues. The trend has even tended to increase every month, since the increase in tariffs took effect on April 1, 2022.

The impact of the 1 percent increase in the VAT rate increased consumption tax revenue of Rp. 51 trillion in the April-November 2022 period. This means that the average additional VAT revenue per month reaches Rp. 6.37 trillion.

“Until November, an additional Rp. 7.57 trillion [tax revenue] is due to a 1 percent increase in VAT. As of December 14, 2022, there is an [additional] Rp. 2.57 trillion, we will calculate it later [after December 31, 2022],” Sri Mulyani said last week then.

In April 2022 or the first month of implementing the 11 percent VAT rate, additional new revenues of IDR 1.96 trillion. The amount increased in July 2022 to IDR 7.15 trillion and tends to continue to increase until November 2022.

As an illustration, the additional state revenue after the increase in the VAT rate throughout 2022 slightly exceeds the 2024 budget for infrastructure development for the nation’s capital city (IKN) which is allocated at IDR 47 trillion. The additional VAT is also equivalent to the 2022 School Operational Assistance (BOS) budget of IDR 51.6 trillion.

Sri Mulyani said that the increase in VAT revenues illustrated that economic activity had also increased. The reason is that VAT is a tax that is collected from consumption activities, so the higher the VAT receipt, the more consumption will occur.

Furthermore, as of December 14, 2022, overall tax revenue has reached IDR 1,634.36 trillion or grew 41.9 percent (year-on-year/YoY). The realization was equivalent to 110.06 percent or exceeded this year’s target of IDR 1,485 trillion.

Sri Mulyani ensured that this figure exceeded the government’s target set out in Presidential Regulation number 98 of 2022.