Raising VAT Tariffs To 12 Percent To Increase State Revenue Is The Most Indirective Way

A student unfurled a poster while demonstrating at the West Kalimantan Provincial DPRD in Pontianak, West Kalimantan, Wednesday (13/4/2022). (Bessara/Jessica Helena Wuysang/aww)

JAKARTA The Value Added Tax (VAT) set to increase to 12 percent starting next year is being highlighted by various groups. Starting from the famous lawyer Hotman Paris Hutapea and economists assessing that the increase in VAT will only burden the community.

The certainty that VAT will continue to rise to 12 percent starting January 1, 2025, was announced by Coordinating Minister for Economic Affairs Airlangga Hartanto some time ago. This was confirmed after Prabowo Subianto-Gibran Rakabuming Raka won the 2024 Presidential Election.

The pair number two confirmed that they would continue with President Joko Widodo's (Jokowi) program, including tax matters.

"We see that the Indonesian people have made choices, their choices are sustainable. Still, if it continues, the various programs launched by the government will continue, including the VAT policy," said Airlangga at his office, Friday (8/3).

Economist and Executive Director of the Center of Economic and Law Studies (CELIOS) Bhima Yudhistira criticized the policy of increasing VAT to 12 percent. According to Bhima, the increase threatens the purchasing power of the middle class.

Bhima predicts that the increase in VAT can reduce people's purchasing power for secondary products such as electronics, motorized vehicles, to cosmetics or skincare. He is even worried that this latest policy will actually give birth to a wave of layoffs (PHK).

"Middle class has been hit by an increase in food prices, especially rice, high interest rates, difficult to find work, in the future 12 percent of VAT tariff adjustments have been added," Bhima told VOI.

Another impact is of course to business actors themselves because the price adjustment due to the increase in VAT rates has an impact on turnover and in the end there is an adjustment in production capacity to the number of workers needed. Worried that the VAT rate will increase, it could become layoffs in various sectors," added Bhima.

The increase in VAT rates was also complained by the famous lawyer Hotman Paris Hutapea. Through his personal Instagram account, Hotman said that the people would become victims because the increase in VAT to 12 percent could help raise product and service prices.

"Poljak naik lagi! Hai kamu: jangan mengatakan rasain Hotman! Karena pajak naik maka harga produk dan jasa naik dan akhirnya rakyat yang bayar! Pelaja bagi yang tidak sadar," kata Hotman.

The increase in VAT is in line with the implementation of Law Number 7 of 2021 concerning Harmonization of Tax Regulations (HPP). In this regulation, the government and the DPR set VAT to increase to 11 percent starting in 2022 and to 12 percent starting in 2025.

Quoting Online Taxes, VAT is a levy charged with the sale and purchase of goods and services transactions carried out by private taxpayers or corporate taxpayers who have become Taxable Entrepreneurs (PKP). So, those who are obliged to collect, deposit and report VAT are traders or sellers. However, those who are obliged to pay VAT are final consumers.

VAT is imposed on consumers, there are two types. First, collect and determine the amount by the Regional Government (Pemda) called PB1.

PB1 is currently still at 10 percent. PB1 is imposed on consumers, for example when eating at restaurants. This tax is an additional cost of the total consumer purchases collected by the regional government for the regional needs concerned.

Meanwhile, VAT, which will generally be increased to 12 percent by 2025, is collected by the central government through the Directorate General of Taxes (DJP) of the Ministry of Finance.

Some of the transactions subject to VAT are the purchase of houses, motorized vehicles, internet services, shop and apartment rentals to Netflix subscription services and so on. This means that if VAT goes up, the price of these goods and services will also creep up.

The policy of increasing VAT rates is one of the government's efforts to increase the number of state revenues in the tax sector. The state financial burden that increased after the COVID-19 pandemic forced the government to increase the tariff, because taxes are the largest source of state revenue at this time.

But Bhima believes that the increase in VAT rates is not the main solution to increase state revenue. He urged the government to cancel the plan to adjust the VAT rate and open a wealth tax discussion, anomalous tax on commodity profit (windfall profit tax) and the application of a carbon tax as an alternative to canceling VAT 12 percent.

"If you want to push the tax ratio, the tax double-object is not tariff. Raising the tax rate is the same as hunting in a zoo, aka the least creative way," concluded Bhima.