Wealth Taxes Are Considered Better Than VAT 12 Percent

JAKARTA - Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, asked the Government to first cancel the 12 percent VAT rate increase and switch to tax the rich through wealth tax, which has the potential to reach IDR 81.6 trillion.

"Public the increase in VAT rates of 12 percent first. Tax the rich through wealth tax because there is a potential of IDR 81.6 trillion," he told VOI, Monday, December 22.

In addition, Bhima conveyed that the carbon tax, coal production tax, and windfall tax on extractive commodity profits should be implemented. Improvement of tax compliance must also be done, so that the tax ratio can increase without burdening the purchasing power of the lower middle class.

"Then the carbon tax is carried out, and the coal production tax and the windfall tax on extractive commodity profit are encouraged. The tax compliance is also increased so that there is an increase in the tax ratio without disturbing the purchasing power of the lower middle class," he said.

On the other hand, Bhima also highlighted Indonesia's position in fifth place with the lowest Regional Minimum Wage (UMR) in Southeast Asia, but inversely proportional to the imposition of a high value added tax (VAT).

Bhima assessed that this policy burdens the community, especially workers, with higher taxes while their income is unable to catch up with the increasing burden of life.

"That means that the government is only burdening higher taxes on the community, especially workers, while income is unable to catch a high living burden, one of which is because of tax collection," he explained.

According to him, increasing tax burdens that are not offset by increasing public income can risk reducing people's purchasing power which is getting sharper and in turn will complicate the achievement of state tax revenue targets.

In addition, Bhima predicts that Indonesia's tax ratio will remain at 10 percent to 10.5 percent until 2029, far from the target tax ratio desired by Prabowo, which is 23 percent.

"The tax ratio is estimated not to move at 10-10.5 percent until 2029. Far from the target of the Prabowo tax ratio of 23 percent," he explained.

Bhima added that this counterproductive policy would actually reduce purchasing power, the low tax ratio and the cost of maintaining purchasing power would be much more expensive than the tax revenues obtained by the state, one of which was the implementation of VAT 12 percent.

"If the method is counterproductive, the purchasing power will decrease, the tax ratio is low. Even the cost of maintaining purchasing power will be much more expensive than the tax revenue obtained by the state, for example, the VAT 12 case," he concluded.

To note, the list of VAT rates in ASEAN countries, namely the Philippines, 12 percent, Indonesia 11 percent, will increase to 12 percent in 2025, Vietnam 10 percent, Cambodia 10 percent, Malaysia 10 percent, and Laos 10 percent.

Meanwhile, based on data from Numbeo's report, the UMR list in ASEAN countries is Singapore USD 5,170, Malaysia USD 817, Thailand USD 560, Vietnam USD 461, Philippines USD 348, and Indonesia USD 325.