The All-Out Effort to Return to Normal Deficit

Tax system
Summary

  • The plan to increase the tax revenue by increasing the VAT rate, imposing plastic excise, and adding one bracket to the individual income tax, is part of the government’s fiscal consolidation attempt to return to the three percent fiscal deficit limit. The IMF had previously recommended the strategy to increase tariffs and expand the tax base to boost the state revenue.
  • The idea to increase the VAT rate is not new. In 2017, the IMF had recommended it to boost tax revenue. Previously, reviewing Indonesia's VAT system was part of the medium-term revenue strategy or MTRS.
  • The tax potential of high earners in Indonesia is huge due to the growing population. Based on the 2019 Global Wealth Report released by Credit Suisse, about 115,000 Indonesians were in the one percent group holding the global wealth. Individuals falling into this category have a net worth of at least US$936,400 or Rp 13.37 billion.

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