CORE: VAT Increase Plans Must Be Done In The Right Momentum

JAKARTA - Researcher from the Center of Reform on Economics (CORE) Indonesia Yusuf Rendy Manilet stated that the plan to increase the Value Added Tax (VAT) rate to be implemented during the next administration must be carried out at the right momentum.

As is known, the mandate of the Law on Harmonization of Tax Regulations (UU HPP) Number 7 of 2021 states that the government will again increase the VAT rate from 11 percent to 12 percent which will take effect as of January 1, 2025.

"Actually, this is not a new government policy, this is an old government policy, but it will be implemented by a new government, so we decided to also look at it. The message that later we need to convey in terms of the plan to increase the VAT rate is that it must be carried out at the right momentum. Don't then when the price rate has increased, then it is decided to pass or apply the new VAT rate," he said at the CORE Quarterly Review 2024: Economic Challenges in the Middle of Government Transition virtually, quoted from Antara, Thursday, April 25.

Efforts to adjust to momentum mean that the policy of increasing VAT rates needs to be adjusted to other government policies related to inflation or the target of increasing wages, so as not to have excessive consequences for the economy.

Until now, Indonesia's VAT rates are still below the world VAT average, including the Organization for Economic Co-operation and Development (OECD) which is 15 percent.

With the increase in VAT by 1 percent to 12 percent, it has the potential to increase state revenue by Rp52 trillion.

However, the current determination of the Indonesian VAT rate uses a single tariff scheme. This is considered unfair because it does not consider differences in purchasing power and the need between different groups of goods and services.

He gave China an example of a country that has relatively high VAT rates, but implemented a multi-rate scheme.

In China, he continued, it has various VAT rates and is classified according to goods. When goods are deemed more important for the lives of many people, the VAT rate is determined to be lower.

The point of government policy to increase VAT, especially in the long medium term, needs to be considered in order to implement a kind of multi-tariff. So, the nature of VAT is not regressive, but progressive, just like income rates, so the element of justice in the implementation of VAT can also be felt," said Yusuf.