New Stumbling Block for Economic Growth

Director of the Center of Economic and Law Studies, Bhima Yudhistira Adhinegara,

said that the imposition of VAT on groups of goods and services that are basic needs of the community has the potential to raise inflation rates and hit people's purchasing power. "The calculation is that a 1 percent increase in the VAT rate will increase inflation by 2-4 percent because of the potential for price rounding up by sellers of goods and service providers," Bhima told Tempo yesterday. This condition will directly erode household consumption, which is currently being boosted to return to the range of 5 percent. As is known, public consumption has been the main contributor driving economic growth. "As a result of this policy, consumption growth could drop to only 2-3 percent," said Bhima. Thus, not only the middle-upper society, all levels of society will also be exposed to the risk of being affected by the imposition of VAT. Instead of increasing the realization of tax revenues, this policy has the potential to erode revenue. Moreover, VAT is a type of tax with the second largest proportion of total tax revenue. Economist from the Center of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, added that the detailed requirements and classification of goods and services that will be levied with VAT must be carried out clearly to avoid public misperceptions.

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