Economist Suggests Government Cancel 12 Percent VAT Increase Next Year

JAKARTA - Director of the Digital Economy Center of Economic and Law Studies (Celios) Nailul Huda said that the increase in VAT rates in 2025 must be canceled.

So that the government has the opportunity to make VAT rates that do not burden the community more deeply.

"The government has the opportunity to ease the burden on the community. However, the government has actually increased the burden borne by the community," he told VOI, Thursday, November 28.

Just so you know, the Minister of Finance (Menkeu) Sri Mulyani ensured that VAT rose to 12 percent as of January 1, 2025.

This policy was taken based on Law Number 7 of 2021 concerning Harmonization of Tax Regulations (HPP). In Chapter IV Article 7 paragraph (1) letter (b) which states that the VAT rate is 12 percent no later than January 1, 2025.

Huda said that with the increase in VAT rates to 12 percent in 2025, the government would only increase the burden borne by the community. In the end, people who help ease the community.

"The powerer just stays in his chair," he explained.

Huda said that the delay in the increase in VAT rates was in articles 7 number (3) and (4) which gave the government the authority to determine VAT rates in the range of 5 percent to 15 percent through Government Regulations.

According to him, this point at the same time refutes Sri Mulyani's claim that she only complies with the law.

Because there are still opportunities for the government to help the community so that it is not burdened too much.

Huda gave an example, such as the carbon tax which should be implemented in 2022, but so far it has not been implemented.

According to Huda, this too heavy burden stems from the weakening of people's purchasing power. Where people's consumption growth slowed in the third quarter of 2024 with household consumption growth of only 4.91 percent (yoy).

"Meanwhile, on a qtq basis, household consumption decreased by 0.48 percent. We experienced deflation of 5 consecutive months (May-September). MSME actors admitted that their turnover had decreased by 60 percent according to BRI," he explained.

Huda said that the government did need money to patch the widening budget deficit. And the easiest thing for the government is to increase the VAT rate.

However, there are other reception posts that have not been worked on, namely illegal mining sector state revenues.

"Hasyim once said that there were Rp. 300 trillion from tax evaders, why not prioritize it? Instead of increasing VAT rates," he explained.

Huda said that Indonesia's VAT rate of 11 percent is still higher than other ASEAN countries and OECD countries, where the VAT rate in Malaysia is only 8 percent, while Singapore is 9 percent.

The highest VAT rate is the Philippines at 12 percent.