Indonesian Govt Criticized for Lack of Transparency on 12 Percent VAT

November 25, 2024 | 01:12 pm

TEMPO.CO, Jakarta - The Central Information Commission (KIP) assesses that the Indonesian government is not transparent in conveying socialization of the 12 percent Value-Added Tax (VAT). Therefore, KIP requests the government to be open in conveying plans, socialization, and implementation of the 12 percent VAT which will be effective on January 1, 2025. Moreover, the plan concerns the livelihood of many people.

"Lack of transparency makes the public skeptical. Power tends to be abused," said KIP member, Rospita Vici Paulyn, to the media at the office in Central Jakarta on Monday, November 25, 2024.

Due to the lack of transparency, Vici stated, this policy finally sparked controversy in society. She mentioned that the government should be open about the plan, what the tax plan will be used for and ensure it can be used properly.

"The government needs to explain whether it will indeed be maximally utilized by the government," she said.

KIP notes that this 12 percent VAT increase plan will also impact the public's spending. At least, KIP assesses that this plan will affect household consumption, decrease company production performance, layoffs, declining investment interest, and growth targets becoming difficult to achieve.

"This is the impact, our lower-middle-class citizens will experience it," she said.

Chairman of the House of Representatives Commission XI, Mukhamad Misbakhun, had previously responded to the controversy over rejecting this tax increase. According to him, the issue of VAT rates has been conveyed to Finance Minister Sri Mulyani Indrawati in a recent working meeting.

"It has been presented, and Bu Sri Mulyani is still in such a situation (raising VAT)," he said after attending the Core Economic Outlook & Beyond 2025 event at Taman Ismail Marzuki, Jakarta, on Saturday, November 23, 2024.

Misbakhun acknowledged that the current economic situation is difficult due to a decrease in purchasing power and the middle-class. This is evident from the declining savings of the public. "The group of people with a savings account of Rp 3 million has now mostly dropped to Rp 1.8 million," he said.

The results of the Center of Reform on Economics (CORE) research show that the group with savings below Rp 100 million dominates the total number of accounts in Indonesia, accounting for 98.8 percent. This number indicates a consistent decline from the majority having Rp 3 million in 2019 to Rp 1.8 million in 2023.

In Article 4a of Law number 42 of 2009 concerning Value Added Tax on Goods and Services and Luxury Sale Tax, there are goods and services exempt from VAT.

Among these goods are basic necessities, mining products taken from their sources, and food and drinks served in hotels. Besides goods, several services are also exempt from value-added tax. Such as healthcare services, social services, financial services, insurance services, education services, public transportation services, and labor services.

Although basic necessities are not included in the list of VAT objects, their prices may increase due to this policy. Head of the National Food Agency (Bapanas) Arief Prasetyo Adi said other production components are subject to taxation. He gave an example that logistics costs are likely to increase along with the VAT rate hike. This increase in production costs will affect rice prices.

Director of Macroeconomic Research at Core, Akhmad Akbar Susamto, said the VAT increase might actually have a negative impact on the overall economy. This is because the volume of transactions of goods and services in society will decrease, thus suppressing domestic consumption. "It's more harmful than beneficial, better to postpone it for now," he said.

Ilona Esterina contributed to writing this article.

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