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TEMPO.CO, Jakarta - The pros and cons of implementing 12 percent VAT by January 1, 2025, were responded to by the Chair of the National Economic Council (DEN) Luhut Binsar Pandjaitan, who stated that Indonesian President Prabowo's administration plans to postpone the increase in value-added tax (VAT) rates.
"Almost certainly postponed," said Luhut in Jakarta on Wednesday, November 27, 2024.
According to Luhut, the application of the new VAT rate increase is because the government will first provide stimulus or incentives to the public through social assistance to the middle class.
"The 12 percent VAT before that, stimulus must be given to the people whose economy is difficult," said the former Maritime Affairs Coordinating Minister.
He stated that the social assistance provided by the government as a cushion in the implementation of the 12 percent VAT would not be in the form of direct cash assistance (BLT), but rather an electricity energy subsidy.
"Because if given (in the form of BLT) then there is a fear it will be gambled on later," he said.
Luhut mentioned that the budget for such social assistance has been prepared by the government through the State Revenue and Expenditure Budget (APBN), and the distribution plan will be completed soon.
The government will implement the new 12 percent VAT rate in accordance with Law Number 7 Year 2021 concerning Tax Harmonization, which decides that VAT will be raised gradually, to 11 percent on April 1, 2022 and 12 percent on January 1, 2025.
However, this plan has been rejected by almost all segments of society. Several business organizations from Apindo, Gapensi to Kadin have called on the government to postpone the implementation of the new VAT rate because they are concerned that the people's purchasing power will further decrease.
Regarding the wave of rejection of the 12 percent VAT increase, the head of DEN stated that this is only because the public is unaware of the raising structure. "Yes because people don't know about this, this structure," he said.
Previously, Finance Minister Sri Mulyani Indrawati stated that the plan to increase the value-added tax (VAT) rate to 12 percent on January 1, 2025, will be implemented according to the mandate of the Law.
During a working meeting with Commission XI of the Indonesian House of Representatives, quoted in Jakarta, on Thursday (13/11), the Minister explained that tax policy formulation is carried out by taking into account conditions in various sectors.
The discourse of a 12 percent VAT was written in the Harmonization of Tax Regulations (HPP) Law drafted in 2021. At that time, the government considered health conditions and the basic needs of the people affected by the COVID-19 pandemic.
The Spokesperson of the National Economic Council (DEN) Jodi Mahardi stated that the adjustment policy for the Value-Added Tax (VAT) rate to 12 percent is being comprehensively reviewed to adjust to the national and global economic situation.
"I refer to Pak Luhut's statement earlier, we need to convey that the policy is still in a deep review stage," said Jodi when contacted by ANTARA in Jakarta, Wednesday.
He said that currently the world, including Indonesia, is facing various challenges that will impact the domestic economy. These challenges include the impact of Donald Trump's election as President of the United States, the decline in China's economy, and the weakening purchasing power of the lower middle class.
With various economic risks and challenges, he said, the government wants to maintain inclusive and sustainable economic growth.
"Therefore, various economic policies, including those related to VAT, are being comprehensively reviewed to ensure their sustainability in line with the national and global economic conditions," he said.
Business Organizations Rejecting the 12 Percent VAT
Several business organizations are rejecting the government's plan to increase VAT from 11 percent to 12 percent next year.
The Indonesian National Construction Implementers Association (GAPENSI) considers that the plan to increase VAT could create massive domino effects since many parties will be directly impacted starting from material prices and construction service which mostly consist of micro, small, and medium enterprises (MSMEs).
"The construction sector has a significant multiplier effect. If this sector weakens, the supply chain of materials, workforce, and other services will also be affected," said GAPENSI Secretary-General La Ode Safiul Akbar in an official statement received by Tempo on Monday, November 25, 2024.
The 12 percent VAT, he said, will only reduce the purchasing power of the people influencing their own welfare, especially those from the lower class. "Additional tax burdens have the potential to worsen inequality, especially for small businesses and low-income communities," said La Ode.
The Chamber of Commerce and Industry (Kadin) requests the government to review the plan.
"The timing is not right, not about the 12 percent," said Kadin Chair Arsjad Rasjid in South Jakarta, on Tuesday, November 26, 2024.
The Chair of the Indonesian Employers Association (Apindo), Shinta Widjaja Kamdani, emphasized that Apindo is against the discourse of increasing the Value-Added Tax (VAT). This rejection, said Shinta, is based on concerns about the possible decrease in consumer consumption following the VAT increase.
"Implementing the VAT policy at this time actually risks suppressing domestic consumption," said Shinta as quoted from her written statement on Friday, November 22, 2024.
Today, on Thursday, November 28, 2024, she is scheduled to meet Finance Minister Sri Mulyani to discuss the increase in value-added tax (VAT) to 12 percent. The meeting was called by the Ministry of Finance, as reported by Apindo.
"I think the government is currently in a position to listen to inputs," she said when met after the press conference "Visit Store Klingking Fun - Anti Golput Discount Party Edition for the 2024 Regional Elections" on Wednesday, November 27, 2024.
Shinta guessed that the government might want to exchange ideas at the moment. "I believe the government also understands the situation we are facing," she said.
Hanin Marwah, Adil Al Hasan, Vendro Immanuel, Nabiila Azzahra, Antara contributed to this article.
Editor's Choices: Economic Council Chair Luhut Says 12% VAT to Be Postponed
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