Chair of the National Economic Council (DEN,) Luhut Binsar Pandjaitan, has stated that President Parbowo’s administration will “almost certainly delay” the proposed 12 percent VAT hike, scheduled for January 1, 2025, according to reporting from Tempo.
According to Luhut, the likely delay of the new VAT rate increase is because the government will first provide stimulus or incentives to “the people whose economy is difficult” through social assistance to the middle class, adding that the social assistance provided by the government as a cushion in the implementation of the VAT hike 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 with later,” he said.
Luhut said that the government has prepared the budget for such social assistance through the State Revenue and Expenditure Budget (APBN), and the distribution plan will be completed soon, reports Tempo.
The plan was to implement the new 12 percent VAT rate in accordance with Law Number 7 Year 2021 concerning Tax Harmonization, which declared that VAT will be raised gradually, to 11 percent on April 1, 2022 and to 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, says Tempo.
Regarding the wave of rejection of the increase, the head of DEN stated that this is only because the public is unaware of the structure.
Previously, Finance Minister Sri Mulyani Indrawati said that the plan to increase VAT to 12 percent on January 1, 2025, would be implemented according to the mandate of the law. During a working meeting with Commission XI of the Indonesian House of Representatives, on November 13, she explained that tax policy formulation is carried out by taking into account conditions in various sectors.
The discourse of the VAT hike 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 said that the adjustment policy for the increased rate 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 News in Jakarta on Wednesday (27/11/24.)
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, says Tempo.
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.
According to Tempo, several business organizations are rejecting the government’s plan to increase VAT. The Indonesian National Construction Implementers Association (GAPENSI) considers that the plan could create massive domino effects since many parties will be directly impacted starting from material prices and construction services, 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 (2511/24.)
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) has also requested the government to review the plan. Kadin Chair, Arsjad Rasjid said in South Jakarta, on Tuesday (26/11/24,) that “the timing is not right.”
The Chair of the Indonesian Employers Association (Apindo), Shinta Widjaja Kamdani, said that Apindo is against the discourse of increasing VAT. This rejection, said Shinta, is based on concerns about the possible decrease in consumer consumption following such an increase.
“Implementing the VAT policy at this time actually risks suppressing domestic consumption,” said Shinta as quoted from her written statement on Friday (22/11/24,) says Tempo.
On Thursday (28/11/24,) she is scheduled to meet Finance Minister Sri Mulyani to discuss the proposed VAT increase. 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 input,” she said and suggested that the government might want to exchange ideas, saying that, “I believe the government also understands the situation we are facing.”
Source: Tempo
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