The Constitutional Court's Decision On The HPP Law Is A Determinant Of Up Or Down VAT Tariffs

Illustration: Photo: Doc. ANTARA

JAKARTA - The Constitutional Court (MK) is scheduled to read out the verdict on the lawsuit filed by the Civil Society Coalition against Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP) on August 14, 2025.

Meanwhile, one of the important points in the lawsuit is the objection to the article that allows an increase in Value Added Tax Rates (VAT).

Center of Economic and Law Studies (Celios) researcher Jaya Darmawan said that the Constitutional Court's decision would determine the direction of the VAT rate policy in the future whether it would continue to increase or be lowered.

"Because on August 14, the Constitutional Court will issue a decision on the lawsuit made by the Civil Society Coalition against the law on the harmonization of tax regulations, related to the potential for VAT to continue to rise," he said at the Celios discussion event, Tuesday, August 11.

Jaya stated that CelIOS pushed the reduction in VAT rates to 8 percent based on simulation results and macroeconomic calculations.

According to him, simulations using the IKO model show that the reduction in VAT rates actually has a positive impact on GDP, economic output, and public income.

In fact, he continued, indirect tax revenues, the potential for additional state revenues could reach IDR 1 trillion per year

He also responded to concerns from the government that stated the potential loss of state revenue of up to Rp70 trillion if the VAT rate was not increased.

According to the BELIOS simulation, these concerns are not entirely accurate, because the effect of reducing VAT rates can actually increase consumption and ultimately boost state revenues.

However, he said that his party still recommended that the VAT rate be lowered to 8 percent on the grounds that the policy could have a positive impact on Gross Domestic Product (GDP), economic activity, and people's purchasing power.

"That's why we encourage it to be better if the VAT rate is actually lowered to 8 percent. We will try to control this later together with the Constitutional Court's decision on August 14," he said.

For information, this application for judicial review focuses on the provisions in Article 4A paragraph (2) letter b, paragraph (3) letters a, g, j, and Article 7 paragraph (1), (3), and (4) of the HPP Law. The Petitioners assess that these provisions have a direct impact on the elimination of basic goods, health services, education, and public transportation from the list of goods and services that are not subject to Value Added Tax (VAT).

In addition, the HPP Law also stipulates new provisions regarding VAT rates and the mechanism for changes.

The Petitioners argue that the provisions in Article 4A paragraph (2) of the HPP Law contradict Article 27 paragraph (2), Article 28H paragraph (1), and Article 28H paragraph (2) of the 1945 Constitution.

The increase in VAT rates by up to 12 percent, according to the Petitioners, has triggered a surge in the price of basic goods, in the midst of stagnant or even declining condition of people's income.

This situation, they continued, forced people to reduce the quality of consumption or no longer be able to buy goods of the same quality.

Through its petitum, the Petitioners asked the Constitutional Court to state that the provisions of the articles being tested were contrary to the 1945 Constitution and had no binding legal force.

Selain itu, untuk Pasal 7 ayat (3) UU HPP, para Pemohon meminta Mahkamah agar menetapkannya sebagai ketentuan konstitusional bersyarat, sepanjang penetapan tarif PPN didasarkan pada indikator ekonomi, sosial, dan lingkungan yang jelas.

Sedangkan untuk Pasal 7 ayat (4), para Pemohon meminta agar perubahan tarif PPN hanya dapat dilakukan melalui undang-undang, bukan peraturan pemerintah.

In addition, for Article 7 paragraph (3) of the HPP Law, the Petitioners asked the Court to establish it as a conditional constitutional provision, as long as the determination of VAT rates is based on clear economic, social and environmental indicators.

As for Article 7 paragraph (4), the Petitioners requested that changes to VAT rates can only be carried out through law, not government regulations.