Indef: 12 Percent VAT Should Be Implemented When People's Conditions And Purchasing Power Are Stable

JAKARTA - Executive Director of the Institute for Development of Economics and Finance (Indef) Esther Sri Astuti said that the plan to increase Value Added Tax (VAT) rates to 12 percent could be applied if people's economic conditions and purchasing power were stable.

Esther said that the plan to increase VAT rates in accordance with the Law on Harmonization of Tax Regulations (HPP) to 12 percent from 11 percent should not distort the factors forming Gross Domestic Product (GDP).

"According to Laffer's theory, the economy will grow first and then the tax revenue will increase. Instead of increasing tax rates, the economy will grow," Esther said, quoted from Antara, Thursday, December 26.

According to him, the plan to increase VAT to 12 percent on January 1, 2025 needs to be studied taking into account current economic conditions and domestic economic prospects.

If after being weighed, there is a conclusion that the increase in VAT is deemed inappropriate, then the government needs to be realistic in delaying the increase in VAT rates to 12 percent from 11 percent.

"The point is political will and that can be because at this time we admit that economic conditions are sluggish and less enthusiastic," he said.

According to him, the government can review the experience of the Malaysian Government which had raised the VAT rate and had an impact on the country's economy. As a result, Malaysia also lowered the VAT rate.

"The Malaysian government only increased the VAT rate after knowing the impact of the tariff increase resulted in the volume of exports falling, then the policy was evaluated and the VAT rate was lowered as before," he said.

The government plans to increase the VAT rate to 12 percent starting next year. This policy is regulated in Law Number 7 of 2024 concerning Harmonization of Tax Regulations (UU HPP).

The 12 percent VAT rate has become part of the 2025 State Budget Law, which has been mutually agreed upon by the Government and the DPR. If you want to change the VAT rate in the APBN Law, then the mechanism is through the discussion of the Adjustment/Change RAPBN.

The HPP Law is the result of an agreement between the government and the DPR which was stipulated during the COVID-19 pandemic.

The government has increased the VAT rate, especially for luxury goods which are the consumption of the upper class, as well as at the same time the government has also set a zero percent tax affirmative policy for a number of basic commodities to be consumed by other people.

According to the Directorate General of Taxes (Directorate General of Taxes) of the Ministry of Finance, the impact of increasing VAT rates on goods and services prices is only 0.9 percent.