Apindo: Next Year's VAT Hike to 12% Can Boost State Revenue by 80%
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13 August 2024 13:09 WIB
TEMPO.CO, Jakarta - Indonesia's value-added tax or VAT is expected to increase from the current 11 percent to 12 percent next year. The tariff increase policy has been stipulated in Law No. 7 of 2021 on the Harmonization of Tax Regulations or the HPP Law.
Article 7 paragraph 1 of the law states that a 12 percent VAT will be applied no later than January 1, 2025. Ajib Hamdani, economic policy analyst from the Indonesian Employers Association (Apindo), said that the implementation of the new tax rate is a way of carrying out the fiscal function to increase the country's revenue.
"A one percent increase in the VAT rate will contribute to additional revenue of no less than Rp80 trillion in 2025," he said in an official statement quoted on Tuesday, August 13.
His projection is based on the simulation of revenue from VAT and sales tax on luxury goods (PPnBM), which will reach Rp764.3 trillion in 2023. The calculation also took into account economic growth and inflation this year and next, which are 5 percent and 2.5 percent, respectively.
As long as there are no regulations repealing the HPP law's tariff hike article, the government will enforce the policy, Ajib said. However, experience has shown that the implementation of these regulations could be postponed, he said. "Just like when the government postponed the collection of the carbon tax, which was supposed to be effective from April 1, 2022," he said.
Weak Purchase Power
According to Ajib, although it has been decided, the VAT hike needs to be studied in more detail as people's purchasing power is currently on a downward trend. According to data from Bank Mandiri's National Socio-Economic Survey (Susenas), the middle class experienced a decline in purchasing power from 21.45 percent in 2019 to 17.44 percent in 2023. Similarly, the University of Indonesia's Economic and Community Research Institute (LPEM) found that 8.5 million of Indonesia's population will experience a decline to a lower economic class in 2018-2023.
On the other hand, macroeconomic data shows that more than 60 percent of Indonesia's gross domestic product (GDP) is supported by household consumption.
"This means that if people's weakening purchasing power continues to be burdened by counterproductive fiscal policies, the Prabowo-Gibran administration's goal of setting rather aggressive economic growth targets will face obstacles," he reiterated.
On August 5, Coordinating Ministry for Economic Affairs Secretary Susiwijono Moegiarso said the government had discussed plans to raise the tax rate. He confirmed that the decline in consumption and industrial conditions, as well as suggestions from industry associations, would be taken into account.
Susiwijono added that the potential government revenue from increasing the VAT rate is easy to calculate. One additional percent means about 10 percent of the total VAT revenue this year. "One year's realization is Rp730 trillion, which means an additional Rp70 trillion," he said.
The VAT increase to 12 percent will be decided by the government of President-elect Prabowo Subianto.
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