Indonesia’s GDP to reduce by US$1.3 billion due to VAT hike

Indonesia’s economic expansion has already decelerated.

A Jarkata resident shops for shampoos. — Photo bangkokpost.com

JAKARTA — The planned increase in Indonesia’s value-added tax (VAT) rate from 11 per cent to 12 per cent could reduce the country's gross domestic product (GDP) by 21 trillion Indonesian rupiahs (US$1.3 billion), economists warned.

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 per cent in the third quarter of 2024 from 5.05 per cent 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. — VNS

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