VAT 12 Percent Potentially Adds Medium Community Expenditures Of Up To IDR 4.2 Million Per Year

JAKARTA - The plan to increase Value Added Tax (VAT) from 11 percent to 12 percent as of January 1, 2025 is a discussion that is getting warmer in various circles. Therefore, the Center of Economic and Law Studies (Celios) conducted a study showing that the increase in VAT could have a significant impact on inflation.

According to BELIOS Legal Director, Mhd Zakil Fikri said that he reflected on the 2022 experience, when the government raised the VAT rate from 10 percent to 11 percent, causing inflation to advance to 3.47 percent (YoY). In May, June, and July the same year inflation increased again by 3.55 percent, 4.35 percent, and 4.94 percent (YoY), respectively.

"This inflation has caused a decline in household consumption, especially for the lower middle class," he said in an official statement, Tuesday, December 24.

Zakiul said that CelIOS has also simulated an increase in community needs due to the increase in VAT, the middle class is predicted to experience an additional expenditure of up to Rp354,293 per month or Rp4.2 million per year with an increase in VAT rates of 12 percent.

In addition, Zakiul said that 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.

"Kian is strangling the community because of the increase in the amount of expenditure inversely proportional to the increase in income from monthly salaries, which on average only grew 3.5 percent per year," he explained.

Zakiul said that in 2023 the average salary increase in Indonesia was only 2.8 percent or equivalent to Rp. 89,391 per month plus an increase in the number of unemployed due to the Termination of Employment (PHK) which in 2023 touched 11.7 percent. Where until November 2024 alone, there have been layoffs for 64,751 people.

"This condition encourages various people to rembuk to voice their rejection of efforts to increase VAT from 11 percent to 12 percent. The number of rejection votes is not without reason, because the majority of Indonesia's population today according to the CELIOS study is a resident with a lower middle-income class who will feel the direct impact of the increase in VAT," he said.