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

The planned increase in Indonesia’s value-added tax (VAT) rate from 11% to 12% could reduce the country's gross domestic product (GDP) by 21 trillion IDR (1.3 billion USD), economists warned.

Illustrative image (Photo: Bangkok Post)
Illustrative image (Photo: Bangkok Post)

Jakarta (VNA) - The planned increase in Indonesia’s value-added tax (VAT) rate from 11% to 12% could reduce the country's gross domestic product (GDP) by 21 trillion IDR (1.3 billion USD), 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% in the third quarter of 2024 from 5.05% 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./.

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