TEMPO.CO, Jakarta - A researcher at the Center for Industry, Trade, and Investment at the Institute for Development of Economics and Finance (Indef), Ahmad Heri Firdaus, said that the government’s plan to raise the value-added tax (VAT) to 12 percent would catapult the country to the top of the list of Southeast Asian nations with the highest VAT rates.

“So if Indonesia’s [VAT] reaches 12 percent, Indonesia will have the highest VAT in Southeast Asia,” Ahmad said in a virtual public discussion on Wednesday, March 20.

He mentioned that Malaysia's VAT rate stands at a modest 6 percent, while Singapore and Thailand hover around 7 percent and Cambodia, Laos, and Vietnam at around 10 percent. Indonesia's VAT would be on par with that of the Philippines, making it the highest in the region.

The VAT hike policy is governed by Law No. 7 of 2021 on Tax Harmonization, which grants the government to gradually increase taxes to a maximum of 15 percent. The VAT hike to 12 percent will take effect from January 1, 2025.

Ahmad assessed that the VAT hike will burden communities that expend 95 percent of their income on purchasing basic commodities. The impact of this policy on people’s income will vary, with the lower classes of society bearing the brunt of the impact more than the middle and upper classes.

Furthermore, the 12-percent VAT would engender an increase in production costs, which could lead to a decline in purchasing power. The weakening of purchasing power could prompt companies to resort to layoffs, leading to a decline in incomes. This will eventually hinder economic growth and cause a drop in aggregate state income.

RIANI SANUSI PUTRI

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