Economists Are Worried About The Discourse Of Increasing VAT To 12 Percent Amid The Weakness Of People's Purchasing Power

Illustration. (Photo: Doc. Antara)

JAKARTA - Economists are worried about the discourse of increasing the value added tax (VAT) to 12 percent amid the current issue of weakening middle class purchasing power.

Senior economist Drajad Wibowo said he did not agree with the discourse because he was worried that it would have an impact on reducing tax revenues. He acknowledged that there was a potential increase in revenue from the difference of 1 percent of the VAT rate. However, with the current economic conditions, the possibility of withdrawing VAT will be more difficult to do.

"What if the increase makes the number of people who pay less? Just like goods, if they are sold more expensive, the people who buy less. In the end, our reception is blocked," said Drajad when met after Indonesia Future Policy Dialogue activities in Jakarta, quoted from Antara, Wednesday 9 October.

The weakening of the purchasing power of the middle class is indicated in the deflation trend that has been going on for five consecutive months. According to Drajad, this phenomenon is also influenced by the high unemployment in Indonesia, which has eventually thrown some people from middle class groups.

Similarly, senior economist Aviliani assessed that the plan to increase VAT 12 percent could worsen the declining condition of the middle class. If purchasing power weakens, the business world will also be affected.

Therefore, he suggested that the government focus on increasing public income before raising taxes.

"This is what the business world pays attention to. If you want to raise taxes, first clean up about people's income in the middle class, because they are a request for entrepreneurs," said Aviliani.

The plan to increase the VAT rate of 12 percent is contained in Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP). In Article 7 paragraph 1 of the HPP Law, it is stated that the previous VAT rate of 10 percent was changed to 11 percent which was already valid on April 1, 2022, and will be increased again to 12 percent no later than January 1, 2025.

However, the certainty of the 12 percent VAT policy will later be announced by President-elect Prabowo Subianto after the presidential inauguration.

In addition to the 12 percent VAT increase plan, the HPP Law also provides space to convert VAT to a minimum of 5 percent and a maximum of 15 percent.

Then, the Government has also provided VAT exemption policies for a number of groups, such as basic needs, education, health, and transportation, where this incentive is also enjoyed by the middle to upper class.