Increase in VAT to 12 Percent, APINDO: Boosts State Revenue but Pressures Economic Growth
Friday, 15 November 2024
APINDO’s Economic Policy Analyst, Ajib Hamdani, believes the increase in Value-Added Tax (VAT) to 12 percent will boost state revenue but could pressure economic growth.
Finance Minister Sri Mulyani Indrawati stated that the increase in VAT to 12 percent at the start of next year will proceed as mandated by law. Ajib Hamdani, Economic Policy Analyst at the Indonesian Employers Association (APINDO), said the tax hike could put pressure on economic growth.
As per the Tax Regulation Harmonization Law, VAT is set to rise gradually by one percent, from 11 percent to 12 percent, in 2025. Ajib noted that implementing this policy could enhance state revenue. “The potential additional revenue for the state is around IDR 80 trillion. However, the declining purchasing power will create pressure on economic growth,” Ajib told Tempo on Friday, November 15, 2024.
By increasing VAT rates on January 1, 2025, Ajib emphasized that the government needs to mitigate the weakening purchasing power of the public. Prices of goods circulating in the market will rise, leading to a contraction in product demand. On the supply side, there will also be weakening due to increased prices for goods and services.
Ajib highlighted that the government should engage in discussions with all stakeholders, including the public and business players. VAT is an indirect tax imposed on the wider population. “However, the government needs the help of business players to collect and remit the tax to the state,” he said.
Chairman of APINDO's Labor Affairs Division, Bob Azam, also urged the government to reconsider the VAT rate hike. Amid the current sluggish labor-intensive industry, the tax hike might not align with the expected increase in state revenue. “We always convey to the government that a VAT hike doesn’t necessarily translate to increased revenue, so caution is needed,” he said.
Previously, Secretary of the Coordinating Ministry for Economic Affairs, Susiwijono Moegiarso, explained that the potential state revenue from the VAT hike is easy to calculate. An additional one percent equals roughly 10 percent of the total VAT revenue this year. “The annual realization is around IDR 730 trillion, so the additional revenue is approximately IDR 70 trillion,” he said recently.
The planned one percent VAT hike for next year was reiterated by Sri Mulyani during a working meeting with Commission XI of the DPR on Wednesday. “The law is already in place; we need to prepare so that the 12 percent VAT can be implemented, but with clear explanations,” she said in Senayan on Wednesday, November 13, 2024.
Source: Tempo.co
