Puan warns government to mitigate impact of 12 percent VAT hike

DPR Speaker Puan Maharani/DOK PHOTO: Instagram @puanmahariniri

JAKARTA - The Speaker of the House of Representatives, Puan Maharani, has warned the government to anticipate the impact that will occur with the increase in Value Added Tax (VAT) rates from 11 percent to 12 percent starting January 1, 2025.

Puan also advised that the increase in taxes should be used to improve services for the people.

"We understand the purpose of increasing VAT to increase state revenue and reduce budget deficits. However, the government must pay attention to the impact that will arise from this policy," said Puan Maharani, Wednesday, December 18.

The 12 percent increase in VAT itself is indeed in line with the mandate of Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP). However, Puan asked the government to listen to input from various circles, including experts, on the potential that could be caused by this policy.

"The HPP Law also mandates that the Government can propose a reduction in VAT rates where the HPP Law explains that VAT in effect in 2025 is 12 percent. We must be careful in paying attention to its impact on people's purchasing power and economic growth," he said.

"Because there are still concerns that this policy could worsen the situation for the middle class and small business actors," continued Puan.

Although the government has emphasized that 12 percent VAT will be imposed on luxury goods groups and does not apply to the household consumption sector, Puan assesses that in general it will still be affected by low and middle income groups.

Moreover, the increase in VAT rates is also predicted to trigger inflation in daily consumption goods, such as clothing, cleaning equipment, and medicines, which are basic needs for many families.

"The impact can occur on the community when producers and business actors anticipatoryly increase product prices, triggering higher inflation. This must be anticipated," said Puan.

Therefore, Puan asked the government to prepare a long-term solution. Because based on simulations from the Center of Economics and Law Studies (Celios), the middle class is predicted to experience an increase in expenditure of up to IDR 354,293 per month or IDR 4.2 million per year with an increase in VAT.

Meanwhile, poor families are predicted to bear an increase in expenses of up to IDR 101,880 per month or IDR 1.2 million per year, while vulnerable groups will face an additional expenditure of IDR 153,871 per month.

"With the current economic dynamics, many people have been depressed. Not a few have finally fallen into online loans (pinjol) with unreasonable interest. We hope that there will be no additional economic pressure felt by the community," said the former Coordinating Minister for Human Development and Culture.

Puan also hopes that the government will prepare further steps to face the various challenges that will arise due to the increase in VAT of 12 percent even though the Government also plans to provide tax incentives worth IDR 445 T with the target of beneficiaries being MSMEs, the business world, and households.

The labor-intensive sector, such as the textile industry, has weakened over the past few times. Hopefully, this VAT increase will not worsen the situation," he concluded.