BI Ensures 12 Percent VAT Has Minimal Impact
- Dok. VIVA.co.id
Jakarta, VIVA – Bank Indonesia stated that the impact of the increase in value-added tax (VAT) from 11 percent to 12 percent, effective January 1, 2025, will not significantly affect inflation next year.
Deputy Governor of Bank Indonesia, Aida Budiman, revealed that, based on calculations, the VAT hike would contribute only 0.2 percent to inflation.
According to her, this inflationary impact is not substantial.
"The calculation shows that it will lead to an additional inflation rate of about 0.2 percent. But is this significant? The answer is no. Based on our projections, inflation will remain slightly above our 2025 target of 2.5 percent, plus or minus 1 percent," Budiman said on Wednesday (Dec 18).
Deputi Gubernur Bank Indonesia (BI), Aida S. Budiman.
- istimewa
Budiman explained that the impact of the VAT increase on inflation must be examined in detail, looking at individual commodities and their weight in the Consumer Price Index (CPI) basket.
"Using the 2022 Cost of Living Survey (SBH), we found that 52.7 percent of the basket's weight in the CPI is affected. From there, we calculated how this influences inflation," she said.
"What portion of the VAT increase will be passed through directly as higher prices? When taxes rise, prices usually follow. However, businesses may sometimes absorb the tax increase through their profits and other means. Historically, about 50 percent of the tax increase is passed through to prices," she added.
Additionally, other factors influence inflation, such as the decline in global commodity prices and Bank Indonesia's consistent monetary policies.
"There are other considerations, such as whether global commodity prices are falling, and indeed they are," she noted.
Regarding the impact on gross domestic product (GDP), Aida stated that the influence of the VAT increase would also be relatively small.
"Direct calculations suggest the impact is not too significant, around 0.02 to 0.03 percent. However, once again, we must consider the broader picture, as the government is also implementing various other incentives," Budiman concluded.
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