Middle Class Benefits from Subsidies, Incentives to Offset 12% VAT Impact: MPR

December 24, 2024 | 05:08 pm

TEMPO.CO, Jakarta - Deputy Chair of the People's Consultative Assembly (MPR), Eddy Soeparno, said that the increase in Value Added Tax (VAT) to 12 percent is accompanied by a number of incentives aimed at the middle class. He argued that this group has already benefited from substantial government subsidies.

“With all due respect, the middle class also enjoys large subsidies from the government. The 3-kilogram LPG subsidy is widely enjoyed by the middle class,” Eddy told reporters at the Senayan parliamentary complex on Monday, December 23, 2024.

According to the PAN politician, the 12 percent VAT policy, which will take effect on January 1, 2025, includes several provisions designed to mitigate its impact on the middle class. He cited the income tax (PPh) exemption for individuals with incomes up to Rp10 million as an example. Additionally, he noted that the 12 percent VAT applied to education will only affect the premium education segment, which he stated has historically been subject to VAT.

Eddy suggested that concerns about declining purchasing power can be addressed through the existing incentives. “What they have enjoyed so far will continue to be provided by the government in the future,” he affirmed.

Previously, the government projected a total incentive package of Rp265.5 trillion in conjunction with the VAT increase to 12 percent next year. VAT incentives constitute the majority of the total tax incentives planned for 2025.

The total value of tax incentives in 2025, amounting to Rp445.5 trillion, primarily comprises VAT and income tax (PPh) incentives. Finance Minister Sri Mulyani said that the tax incentives provided by the government next year will nearly double compared to those offered during the Covid-19 pandemic. 

“For 2025, tax incentives will almost double compared to 2020, reaching Rp445.5 trillion,” Sri Mulyani explained during a press conference discussing the economic policy package at the Coordinating Ministry for Economic Affairs office in Central Jakarta on Monday, December 16, 2024.

This amount represents 1.83 percent of gross domestic product (GDP), a slight decrease from the incentive level during the Covid-19 period, which was 1.85 percent of GDP.

Annisa Febiola and Nabiila Azzahra contributed to this article.

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