Warning And Bad News From Indef: Basic Food VAT Can Increase Poverty Rates

Illustration. (Photo: Unsplash)

JAKARTA - Researcher from the Institute for Development of Economics and Finance (Indef) Riza A Pujarama believes that the plan to collect value added tax (VAT) on basic necessities can have a negative impact. One of them is increasing the poverty rate in the country.

For your information, the rules regarding VAT on basic necessities are regulated in the Draft Law on General Provisions and Tax Procedures (RUU KUP). Currently, the bill is still being discussed by the DPR and the government.

"This has the potential to have an impact on the increase in goods. Second, the poverty line can be raised if not done carefully," he said in a virtual discussion, Tuesday, September 14.

The imposition of VAT on basic necessities was originally planned to only target the types of food consumed by the upper middle class. However, said Riza, if examined, it will still affect the lives of the lower class.

Riza considered that the determination of the types of goods consumed by people with higher incomes was still unclear. Therefore, it is possible that the prices of basic necessities that are not included in the category will also increase.

"But it will definitely increase the various types of goods specified," he said.

Furthermore, Riza said the increase in VAT on basic goods needs to be considered because it affects inflation, volatile food, and the poverty line.

"The mechanism, especially that must be considered, needs to be done carefully and the selection of goods as well," he explained.

In addition, Riza said that anticipatory steps for the lower class, such as the provision of subsidies for the increase in VAT, are also prone to problems with distribution that is not right on target. He said the reason was that so far the accuracy of data in various subsidy distributions was still problematic.

"In my view, we need to be careful and mature. We don't want the VAT increase to not actually provide benefits as expected, but actually have a bad impact on the economy," he said.