Celios: 12% Value Added Tax (VAT) Could Reduce Household and Business Consumption

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Adi Ahdiat 29/11/2024 16:49 WIB

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According to Celios research, the increase in VAT from 11% to 12% could decrease household and business consumption, subsequently hindering economic growth.

Estimated Percentage Decrease/Increase in Household and Business Consumption in Indonesia Based on VAT Rate (November 2024)

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Celios: 12% Value Added Tax (VAT) Could Reduce Household and Business Consumption

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Estimated Percentage Decrease/Increase in Household and Business Consumption in Indonesia Based on VAT Rate (November 2024)

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An increase in the value-added tax (VAT) rate could decrease household and national business consumption.

This was stated by the Center of Economic and Law Studies (Celios) in its report, *VAT 12%: A Heavy Blow to Gen Z's Wallets and Lower-Middle-Class Society* (November 2024).

According to Celios' calculations, if the VAT rate increases from 11% to 12%, the price of taxable goods and services that consumers must pay will increase by 9%.

This price increase is expected to push the consumer price index (CPI) up by 0.14%, which will then impact a decrease in household and business consumption by 0.37%.

"Increases in VAT and inflation can decrease domestic consumption, which is a major contributor to Indonesia's economic growth," Celios stated in its report.

Celios estimates that if the VAT rate increases, households will likely reduce their spending, especially on non-essential goods.

This decrease in consumption could hinder sectors that depend on domestic consumption, such as retail, tourism, and housing. As a result, economic growth dependent on public consumption will be hampered, slowing the post-pandemic economic recovery.

"Furthermore, industrial sectors and companies that depend on the domestic market will also be negatively impacted, which could lead to decreased investment and job losses," they stated.

Conversely, if the VAT rate is lowered, consumption could increase.

Celios estimates that if the VAT rate is lowered to 10%, consumption will increase by 0.37%. Then, if the VAT rate is lowered to 8%, the increase in consumption could reach 0.74%, as shown in the graph.

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."

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Celios: 12% Value Added Tax (VAT) Could Reduce Household and Business Consumption

Celios: 12% Value Added Tax (VAT) Could Reduce Household and Business Consumption

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Celios: 12% Value Added Tax (VAT) Could Reduce Household and Business Consumption

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