Value-Added Tax Hike to 12 Percent to Raise Basic Commodity Prices: Indef

TEMPO.CO, Jakarta - The Institute for the Development of Economics and Finance (Indef) assesses that the increase in the value-added tax (VAT) to 12 percent will push up the prices of basic commodities, albeit the government's exclusion of some commodities to control rising food prices.

Abdul Manap Pulungan, a researcher at Indef, explained that this policy would further increase the price of basic commodities as the government has not been able to limit price hikes at the seller level.

Meanwhile, sellers will certainly be reactive and will not care which commodities are subject to the tax hike. “Especially in traditional markets where there is a lack of monitoring, such as grocery sellers,” Abdul said in a public discussion held virtually on Wednesday, March 20.

Commodities that are not subject to VAT include rice and unhusked rice, corn, sago, soybeans, salt, meat, eggs, milk, fruits, vegetables, spices, and sugar.

Abdul observes that most of Indonesia's economic activity remains in the informal sector, which means it will be difficult to monitor the implementation of this exclusion policy by traders.

Looking at the inflation rate, he explained that the Consumer Price Index tended to decline in February, and the core inflation also dropped significantly, reflecting the weakening purchasing power.

Therefore, he believes that the VAT hike will continue to erode people's purchasing power, affecting economic growth and real sector economic activity.

The government planned to gradually increase the VAT, as stipulated in Law No. 7 of 2021 on the Tax Harmonization Law. The 12 percent VAT will be implemented in 2025. Based on Article 7 (3), the VAT rate can be changed to a minimum of 5 percent and a maximum of 15 percent.

RIANI SANUSI PUTRI

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