CELIOS’ macroeconomic simulation shows that increasing Indonesia’s VAT from 11% to 12% in 2025 would shrink GDP by about IDR 65 trillion and lower household consumption by over IDR 40 trillion. The report highlights how higher consumption taxes disproportionately hurt the lower-middle class and Gen Z, who already face stagnating incomes and rising living costs. Inflation is expected to climb to 4.1%, while pre-emptive price hikes could further erode purchasing power.
The study suggests alternative revenue measures such as wealth and carbon taxes, anti-evasion enforcement in palm oil and digital sectors, and trimming wasteful state expenditures. CELIOS warns that without compensatory policies, the tax hike may exacerbate inequality, increase financial stress, and harm long-term economic stability. Instead, it calls for inclusive fiscal reform that boosts revenue without burdening vulnerable households.
Bibliography:
Huda, N., Askar, M. W., Yudhistira, B., Fikri, M. B., Darmawan, J., & Muhamad, G. D. (2024). VAT 12%: A Heavy Blow to Gen Z and the Lower Middle Class Wallets. Center of Economic and Law Studies (CELIOS).