Waka DPR Believes That The 12 Percent VAT Increase Will Not Lower People's Purchasing Power

A number of protesters carried posters during the 12 percent VAT rejection in front of the Merdeka Palace, Jakarta, Thursday (19/12/2024). BETWEEN PHOTOS/Muhammad Ramdan/foc/am.

JAKARTA - Deputy Speaker of the House of Representatives, Adies Kadir, stated that the increase in Value Added Tax (VAT) rates to 12 percent as of January 1, 2025 was a mandate of the Law that must be carried out by the Government.

Adies also believes that this 1 percent increase in VAT will not reduce people's purchasing power because it has no effect on the general commodity sector.

"This is a mandate of a law that has been mutually agreed upon and the 12 percent VAT policy has passed careful technocratic considerations so that it will not hit people's purchasing power or cause uncontrolled inflation," said Adies Kadir, Tuesday, December 31.

The increase in VAT to 12 percent is a mandate from Law No. 7 of 2021 concerning Harmonization of Tax Regulations (HPP).

According to Adies, 12 percent VAT will not hit people's purchasing power because if you look at the list of commodities included in the Consumer Price Index or the Consumer Price Index, only 33 percent of goods and services are VAT objects and the rest are 67 percent are not subject to VAT.

"This means that most of the commodities consumed by the people on a daily basis are not affected by the increase in VAT rates," said the legislator from the East Java I electoral district.

For information, the list of VAT-free goods and services is basic goods and daily necessities, namely rice, meat, fish, eggs, vegetables, fresh milk and sugar consumption. Then health services, education services, public transportation services, labor services, financial services and insurance, and simple homes, electricity and drinking water use.

Adies explained that the increase in VAT in Indonesia is considered relatively looser than other countries such as Vietnam. For Vietnam, the lower limit for VAT rates is 5 percent, while Indonesia is 0 percent, which even covers 67 percent or most of the people's consumption goods.

"Don't let mature technocratic calculations miss out because of negative sentiment in the market and in the industry. I hope all parties are wise in responding to this tax increase," explained Adies.

On the other hand, Adies asked the government to conduct socialization to the public clearly regarding the policy of increasing VAT. The Golkar politician also assessed that President Prabowo Subianto's attitude in responding to this policy was correct because the government must obey the mandate of the law, although it still pays attention to economic conditions and community difficulties.

"And the implementation of VAT 12 percent selectively in luxury category goods is a win-win solution for all parties," he said.

Adies also supports the government's efforts to provide various kinds of incentives for the community as a stimulus for the increase in VAT. According to him, the scheme formulated by the Ministry of Finance also has the same spirit of partiality, because the increase in VAT will be accompanied by various kinds of incentives for the community.

These incentives include an increase in the Provincial Minimum Wage (UMP) by 6.5 percent, guarantees of job loss for those affected by layoffs, and Article 21 PPh borne by the Government for labor-intensive sector workers with a salary of up to IDR 10 million per month.

Meanwhile, for MSME players, there will be a PPh exemption for turnover below IDR 500 million. Then for entrepreneurs there will also be a 5 percent interest subsidy for the textile sector, to food assistance for the poor category.

"With these various incentives, I am optimistic that the national economy in 2025 will remain resilient," said Adies.

The chairman of the DPR, the coordinator of the economic and financial sector, also believes that inflation will be controlled in the range of 2.5 percent. Adies also assessed that Indonesia's economic growth would be above 5 percent despite the increase in VAT.

"This is in accordance with the target set in the 2025 State Budget," he concluded.