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The Potential Distributional and Economic Wide Impact of the New Indonesia's VAT Law Implementation

Author

Listed:
  • Rus’an Nasrudin

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Djoni Hartono

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Faizal Rahmanto Moeis

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Andhika Putra Pratama

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Raka Rizky Fadilla

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Rustam Effendi

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

Abstract

This article summarises the distributional and economic-wide impact of several policy scenarios of recent tax policy changes in Indonesia. Some of the scenario’s designs are directly drawn from the changes in the new Indonesian tax law or UU HPP (Law on Harmonization of Tax Regulations) concerning broadening the value-added tax (VAT) base. We use a Computable General Equilibrium (CGE) and Microsimulation approach to calculate the impact of these scenarios on economic growth, inflation, government revenue, poverty and inequality. All the scenarios intended to make the tax system simpler and more efficient, with less distortion, and broaden the tax base resulting in low to moderate effects on both macro and distributional indicators accompanied by a significant increase in the government revenue. Our results provide an ex-ante impact evaluation of the current VAT Law Implementation.

Suggested Citation

  • Rus’an Nasrudin & Djoni Hartono & Faizal Rahmanto Moeis & Andhika Putra Pratama & Raka Rizky Fadilla & Rustam Effendi, 2022. "The Potential Distributional and Economic Wide Impact of the New Indonesia's VAT Law Implementation," LPEM FEBUI Working Papers 202272, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2022.
    • Handle: RePEc:lpe:wpaper:202272
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    More about this item

    Keywords

    VAT — Indonesia — tax reform — growth — poverty — inequality;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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