Economists Say 12% VAT Implementation Will Burden Indonesian Middle Class Even More

November 24, 2024 | 01:55 pm

TEMPO.CO, Jakarta - Economist from Segara Institute, Piter Abdullah, assessed that the increase of Value Added Tax (VAT) from 11% to 12% is feared to burden the middle class in Indonesia even more.

Piter mentioned that currently, there is no government regulation easing the life of the middle class. On the contrary, the middle class is being burdened with various taxes that seem endless.

He exemplified that the middle-income group has not received any social assistance so far, but is burdened with tax hikes. Therefore, Piter argued that the purchasing power of the middle class, which is currently on the decline, might plummet even more.

According to Piter, there will be a multiplier effect from the implementation of 12% VAT. Moreover, Indonesia is currently facing the phenomenon of decreasing purchasing power, reduced job opportunities, lay-offs, and stagnant economic growth.

"If we force the VAT hike, it will increase the burden because prices will definitely rise," said Piter when contacted on Thursday, November 21st, 2024. "Prices will rise when the public experiences a decline in purchasing power, thus resulting in a double hit. This term is already fallen, hit the stairs."

Meanwhile, the Director of Center of Economic and Law Studies, Bhima Yudhistira, reminded that aside from the VAT increase, the public will also face 9 new levies in 2025.

Those nine levies are a 0.5% tax for MSMEs and mandatory vehicle insurance (third party liabilities). Then there are contributions to the People's Housing Savings (Tapera) and discussions on Mandatory Pension Funds.

There is also a plan to adjust commuter train ticket prices based on the National ID Card number. Furthermore, the removal of Fuel Subsidies (BBM) will be replaced with Direct Cash Assistance (BLT). There is also a possibility of an increase in Single Tuition Fee (UKT) for students and Health Insurance (BPJS) contributions. Lastly, there will be the implementation of sweetened beverage excise tax.

"The middle class is pressed from all sides. It's tough being middle class in this republic," said Bhima when contacted on Thursday, November 22nd, 2024.

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