Apindo Asks For 12 Percent VAT Tariff Increase Plans Need To Be Reviewed

JAKARTA - The Indonesian Employers' Association (Apindo) views that the policy plan to increase the Value Added Tax (VAT) rate from 11 percent to 12 percent in January 2025 needs to be reviewed.

Chairman of the Indonesian Employers' Association (Apindo) Shinta Widjaja Kamdani said that although this step aims to increase state revenue, its application has the potential to put serious pressure on people's purchasing power and economic growth, which is currently still in the recovery stage.

"This tariff increase is considered to exacerbate the slowdown in domestic consumption, which is the largest contributor to Indonesia's Gross Domestic Product (GDP)," he said in his statement, Friday, November 22.

In terms of industry, Shinta said that all sectors will clearly be affected by this increase in VAT. The increase in VAT can trigger an increase in production costs due to higher taxes along the supply chain, which ultimately has an impact on rising prices for goods and services in the market.

According to Shinta, the impact of the increase in VAT rates will most noticeably be on the manufacturing sub-sector. This condition is becoming increasingly critical considering that the Indonesian manufacturing industry is currently in a declining situation, with the Purchasing Managers Index (PMI) which has contracted for four consecutive months.

"This decline shows that there is a weakening of production and demand activities in the manufacturing sector, which is feared to be increasingly affected by the increase in VAT," he explained.

In addition, Shinta said that her party saw that the implementation of VAT of 12 percent could slow economic growth in the early quarters after this policy was implemented.

According to Shinta, the decline in domestic consumption due to rising prices of goods and services is feared to have a negative impact on state revenues from other sectors, such as Income Tax (PPh), due to slowing economic activity.

In addition, Shinta said that this policy also risks creating greater inequality in society, especially for low-income groups, which are most affected by rising prices for basic necessities.

As a mitigation measure, Shinta said that her party recommended that the government consider postponing the implementation of VAT of 12 percent until people's purchasing power is more stable and economic growth reaches a stronger level.

"If in the end the VAT rate increases, then APINDO also recommends that the government increase the taxless income limit (PTKP) to protect low-income people from the impact of inflation due to the increase in VAT," he said.

Shinta conveyed that another alternative is to maintain lower VAT rates for essential goods and services to ensure the basic needs of the community remain affordable.

"The increase in VAT rates needs to be accompanied by compensation in the form of fiscal incentives on the other hand," he explained.

Shinta said that her party emphasized the importance of intensive dialogue between the government and the business world to ensure that this policy was implemented appropriately.

Therefore, the Government also needs to accelerate economic strengthening measures, such as providing fiscal incentives for affected sectors, increasing the efficiency of state spending, and optimizing state revenues from sectors that have been underdeveloped, such as optimizing PNBP, carbon trading, and shadow/underground economy.

Shinta hopes that the fiscal policy taken by the government will not only focus on increasing state revenue, but also be able to maintain economic stability and people's purchasing power, as well as provide space for business actors to continue to develop amid the challenges that exist.

"With a more measurable and sensitive approach to the condition of society and the business world, APINDO believes that the negative impact of the increase in VAT can be minimized, so that this policy can be implemented without sacrificing the welfare of the community and the stability of the business world," he concluded.