Economist: Not Enough Incentive Giving Reduces The Impact Of VAT Increase To 12 Percent

JAKARTA - Executive Director of the Indonesian Center of Reform on Economics (CORE) Mohammad Faisal stated that the provision of various incentives was not enough to reduce the impact of the increase in VAT to 12 percent.

"The incentives that have been given as a connection with VAT 12 percent are needed, but in my opinion it is not enough to answer all the current problems," said Mohammad Faisal in Jakarta, quoted from Antara, Thursday, December 19.

He said that the problem that arises in the current industry is the decline in demand due to the depletion of the number of middle class which is a driving force for domestic consumption.

In addition, he highlighted the period of providing incentives that were too short, for example only two months for a 50 percent discount on electricity rates.

"The electricity tariff cut is 50 percent for (electric power users) 450 VA (voltampere) to 2200 VA, if I'm not mistaken, now that's actually good, because (policy) has targeted the (middle) class, but unfortunately (only) two months like that," he said.

Faisal said that the incentives provided for labor-intensive industries are also not expected to be sufficient to reduce the impact of the increase in VAT because too many industrial sectors have slumped, such as the textile industry and footwear industry.

Although the government provides special incentives for labor-intensive industries, it states that the purchasing power of the people who are still weak makes the provision of incentives not much impact.

He said that if this condition was not handled carefully, the increase in VAT could increase the potential for layoffs.

Not only incentives, Faisal said that policies are also needed that can protect domestic products so that their demand does not decrease.

Based on his study, many imported goods from China are priced at half or even less than half the price of domestic products.

He also asked the government to tighten control over imported products so that domestic products can still compete.

"Because there (China) itself has subsidies, there is even dumping, right. Not to mention that those who enter in the way are not right, now the problem is that the entry is not only legal, but also illegal," added Faisal.