Indonesia has put forward a proposal to raise its standard VAT rate from the current 10% to up to 15%. This is aimed at stablishing government deficits which have widened during the coronavirus crisis. The government deficit is now exceeding 6% of GDP.
The exact size of the rise is not yet clear – the government has given itself discretion to hike it to 15%. This would be above the regional rates around 10% or less.
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However, such a large rise would likely threaten the early recover. With the exceptions of Saudi Arabia and Kenya, no country in the world has yet risen their VAT rate to help fund the economic recovery post-COVID-19. Most have indeed chosen to extend temporary VAT cuts in hard-hit sectors such as hospitality and tourism.
Indonesia introduced Value Added Tax in 1984. There is registration threshold of IDR4.8billion, although there is scope for a voluntary VAT registration.
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