THE EFFECT OF REVOCATION OF VALUE ADDED TAX EXEMPTION ON MARINE AND FISHERY IMPORTS: CGE MODEL EX-ANTE ANALYSIS

Abstract

Introduction/Main Objectives: Indonesia is one of the world's top three producers of marine and fishery products. Despite this, it still imports marine and fishery products, especially those that are used for production and consumption in hotels and restaurants, for catering, and in modern markets. Background Problems: The government facilitates these imports with value-added tax exemption. This research was conducted to see who would benefit from this incentive being revoked and whether doing so would fulfill the redistribution function of the taxation. Novelty: Unlike other research, which has only used either a macro or micro view, this research used both by employing a CGE model and microsimulation to see the effects of the VAT exemption revocation on marine and fishery products in Indonesia. Research Methods: The analysis focused on the effects of VAT exemption revocation on economic variables, such as the gross domestic product, exports, imports, trade balance, domestic production and demand, equivalent variation, prices, and income redistribution from changes in household consumption. The analysis was carried out with the CGE model, using GTAP Database 10. The simulation starts by adjusting the data baseline and then applying shocks to import tariffs. Finding/Results: The results show that revoking VAT exemption for the import of marine and fishery products would increase the gross domestic product, trade balance, domestic production and demand, and prices. On the other hand, it will decrease exports, imports, equivalent variation, and consumption. Conclusion: This research shows that the revocation of VAT exemption would not have a regressive effect; hence, it would fulfill the income redistribution function of the taxation. The government needs to evaluate the incentive. The limitation of this research is the use of formal documents only without considering non-tariff barriers as other factors