Jakarta – Toyota Motor Manufacturing Indonesia (TMMI) vice president director Bob Azam has asked the government to formulate an impact mitigation scheme ahead of the planned value-added tax (VAT) hike to 12 percent in 2025.
Bob argued that the mitigation scheme was needed to protect the national automotive industry from unwanted side effects that may affect the component supply chain.
He added that instead of VAT being applied in multiple stages in the current taxation scheme – ranging from manufacturing to consumers – VAT should only be applicable for the final stage of the supply chain.
"The government needs to work on mitigation. Rather than [VAT] being multi-stage, it should only be [applied to the] final [supply chain stage]," said Bob on Wednesday.
The VAT hike to 12 percent was previously confirmed by Coordinating Economic Minister Airlangga Hartarto in a bid by the government to create a fairer and more optimized national taxation system.
As stipulated in Law No. 7/2021 on the harmonization of tax regulations, VAT may only be increased up to 15 percent with flexible adaptation by the government based on ongoing economic concerns.
However, several experts have regarded the VAT hike with pessimism because of concern about potential ramifications.
"If the [VAT] rate increases, the impacts will be felt in our economy, so we mustn't let the VAT hike curb our economic growth," said INDEF Center of Macroeconomics and Finance economist Abdul Manap Pulungan on Wednesday, as quoted by Antara.
Abdul highlighted the 0.28 percent drop in Indonesia's economic growth to 5.03 percent in 2023, compared with the previous year's 5.31, as an example of a VAT hike side effect.
He also argued that should VAT be increased, people may become less inclined to spend money due to higher prices.