Bukit, Irene Santi Beru
(2024)
Evaluating the Indonesian VAT policy: evidence from the Indonesian household surveys.
PhD thesis, University of Nottingham.
Abstract
The VAT holds a significant role as the second largest contributor to Indonesia's tax revenue . However, the government must pay attention not only to the tax revenue but also to good tax principles. The four ultimate tax collection principles are fairness, certainty, convenience, and efficiency (Smith, 1776). Fairness is the principle that will be the focus of the present analysis. A tax is considered fair and progressive or proportional when the tax payable is in line with the ability of taxpayers to pay. Unfortunately, the VAT system, as an indirect tax, does not enable the government to treat the taxpayers directly and differently. Therefore, in the VAT system, the most reliable way is to treat the commodities differently.
In achieving the fairness principle in the formulation of VAT, especially in giving appropriate VAT treatment on commodities, this thesis covers several issues on Indonesian Value Added Tax. Started from the evaluation of the regressivity of the VAT, followed by the tax exemption policy formulation based on inequality, and the analysis of the cost and benefit of new VAT policies by considering equity and efficiency. The first and second chapters use the Indonesia Family Life Survey (IFLS) conducted by RAND Corporation, and the third chapter uses SUSENAS, a household survey conducted by Statistics Indonesia.
The first chapter is titled “Evaluating the Regressivity of the Indonesian VAT Policy”. The motivation of the first chapter is to assess whether the Indonesian VAT is progressive or not after having several VAT-exempt items so there is a firm basis to justify the proper treatment of commodities within the VAT system. By using Gini, Kakwani, Coefficient, and Reynold Smolensky indices, it is concluded that Indonesian VAT is quite progressive and more proportional by using expenditure as the measurement.
The second chapter is titled “Value-Added Tax Exemption Policy and Income Inequality: The Case of Indonesia”. After knowing that Indonesia can be more progressive, the chapter analyses the VAT policy of exemption on food commodities and the effect on inequality, which is analysed based on the income level of households. By using unbalanced fixed effects regression, I conclude that cooking oil, sugar, beverages, and spices should be exempt and that dairy products and meat should be excluded from the VAT exemption list to have a more progressive VAT system in Indonesia.
The third chapter is titled “VAT on Food Items in Indonesia: Efficiency and Equity” and uses the Deaton model to deal with the inexistence of reliable price data in developing countries. The price estimated by using the model can be utilised to estimate price and income elasticities, which in the end can analyse the cost-benefit of a proposed VAT policy. I conclude that almost all food items should be exempt from VAT except for fresh shrimp and milk because almost all food items make up a greater share of the expenditure of poorer households.
| Item Type: |
Thesis (University of Nottingham only)
(PhD)
|
| Supervisors: |
Song, Lina
Zhang, Jing |
| Keywords: |
Indonesia, Indonesian VAT policy, VAT, Value Added Tax, Income inequality |
| Subjects: |
H Social sciences > HJ Public finance |
| Faculties/Schools: |
UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School |
| Item ID: |
79681 |
| Depositing User: |
Bukit, Irene
|
| Date Deposited: |
02 Jun 2025 15:25 |
| Last Modified: |
02 Jun 2025 15:25 |
| URI: |
https://eprints.nottingham.ac.uk/id/eprint/79681 |
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