PROPOSED CHANGES TO THE VALUE ADDED TAX: IMPLICATIONS FOR TAX REVENUE AND PRICE DISTORTIONS

摘要

This paper examines changes to the value added tax (VAT) system proposed recently by the Indonesian Ministry of Finance —in particular that the exemptions for certain sectors be ended. Using the input-output relationships in the economy as a basis, it analyses the implications of these changes for tax revenue and for price distortions. It also considers other feasible changes to the VAT exemptions that could be advantageous. The paper concludes that the estimated revenue impacts of the proposed changes are small relative to the apparent scope for revenue increases from improved administration of the system as it stands.