The Impact of VAT Rate Increase on Tax Revenue and Economic Stability in Indonesia

Abstract

This study investigates the impact of Indonesia?s Value Added Tax (VAT) rate increase?from 10% to 11% in 2022, with a planned rise to 12% in 2025?on government tax revenue and macroeconomic stability. Using a quantitative approach, the research analyzes secondary data from Statistics Indonesia (BPS) and the Ministry of Finance through descriptive statistics and linear regression analysis. The findings reveal that the VAT increase significantly enhanced tax revenue, reaching IDR 687.61 trillion in 2022. However, it also contributed to higher inflation, rising to 4.5%, and reduced household consumption, particularly among low-income groups. These results suggest that while the VAT rate hike strengthens state revenue, it also poses risks of inflationary pressure and declining purchasing power. Therefore, a balanced and well-calibrated fiscal policy is essential to sustain revenue growth while preserving long-term economic stability.