The Impact of the Increase in VAT Rates on Inflation and People's Purchasing Power in Indonesia: An Analysis of Data from the Last 5 Years

Abstrak

Introduction/Main Objectives: Value Added Tax (VAT) is a type of tax imposed on the consumption of goods and services at every stage of production and distribution. An increase in VAT rates can have an impact on the prices of goods and services, which in turn affects people's purchasing power and inflation rates. This paper examines the impact of Indonesia's VAT rate increases on inflation and household purchasing power, analyzing how recent tax reforms (2022-2025) have affected price stability and consumption patterns across different socioeconomic groups. Research Methods: Multiple Linear Regression Analysis, Granger Causality Test, Vector Autoregression (VAR) Model. Finding/Results: The findings confirm that VAT hikes have regressive effects, disproportionately burdening lower-income households while contributing to short-term inflation. While the policy aims to boost government revenue, the resulting decline in consumption could slow economic growth, particularly in sectors reliant on domestic demand. Conclusion: While VAT hikes boost government revenue, they risk worsening inflation and inequality without well-designed mitigation policies?Indonesia must balance fiscal needs with protection for low-income households through targeted exemptions, social assistance, and sectoral support.