VAT Rises, Can It Cause Inflation up to 5 Percent?

The increase in the value-added tax (VAT) rate to 11% will certainly have an impact on inflation. However, the government ensures that the impact will not be as severe as expected.

Expert Staff for Tax Compliance at the Ministry of Finance, Yon Arsal, in a press conference, said that the impact of the VAT rate increase on national inflation will not be as large as expected.

“It is estimated that 2-4% and hopefully manageable,” said Yon, Friday (1/4/2022).

Yon acknowledged that the increase in the VAT rate would indeed have an impact on some components contributing to inflation. However, the government still believes that the inflation rate will remain within the range set in the APBN.

“If we evaluate the impact of the VAT increase alone, the impact is hopefully not too significant but still within the range of the APBN,” he explained.

In detail, based on government calculations, the impact of the VAT rate increase on inflation will reach 0.4%. Therefore, the government is not too worried about the increase in VAT will raise inflation.

“The biggest score [inflation determinant] is indeed stapled goods whose position is also not subject to VAT. Approximately 0.4%. If we aggregate within a year, then the inflation target is still within the APBN target,” he explained.

Previously, an increase in VAT of 11% was expected to boost inflation in the country. Senior Economist Faisal Basri estimates that inflation could penetrate 3-5%.

“Inflation in Indonesia exceeds between 3-5%,” said Faisal some time ago