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Minister Airlangga Hartarto speaks of plans to increase VAT to 12 percent

Tempo - May 12, 2024

Annisa Febiola and Riani Sanusi Putri, Jakarta – Minister of Economic Affairs Airlangga Hartarto has spoken out about the government's plan to increase the value-added tax or VAT to 12 percent by 2025.

He made this statement after attending a seminar at Kanisius College in Menteng, Central Jakarta on Saturday, May 11, 2024.

"The first thing is, the future strategy is not about raising the VAT, but increasing tax income," he said.

Airlangga stated that tax income can be increased through the implementation of a better system. "Yes, of course, in the Tax Directorate General, there's an implementation of core tax, and we expect it to be maximized."

He mentioned that the government's future target is to enlarge the state revenue from taxation. "Yes, of course, our target is the increase in revenue from taxation."

Previously, the government stipulated the increase in VAT to 12 percent through Law Number 7 of 2021 concerning the Harmonization of Tax Regulations or the Tax Harmonization Law. This tax hike will be effective no later than January 1, 2025. Earlier in 2022, the government set the VAT rate at 11 percent, effective April 1, 2022.

This decision has faced considerable opposition. For instance, Director of the Pratama-Kreston Tax Research Institute, Prianto Budi Saptono, argued that a 12 percent VAT hike would be a heavy burden for both entrepreneurs and consumers. He noted that taxes are distortive, meaning that tax increases would affect consumer behavior.

He believed that the VAT increase would cause an additional burden on consumers, leading to a potential decline in consumption and consequently affecting sales.

"At the end of the day, business profits could be eroded. VAT revenue may increase, but Corporate Income Tax could decline," he told Tempo.

Meanwhile, Ahmad Heri Firdaus, a researcher at the Center of Industry, Trade, and Investment at the Institute for Development of Economics and Finance (Indef), believed that this policy could potentially reduce Indonesia's competitiveness.

"This decrease in competitiveness can be seen from the decline in exports," Ahmad said during a virtual discussion on March 20, 2024.

Nationally, he estimated that exports would decrease by 1.41 percent. Additionally, household consumption was predicted to decrease by 0.26 percent. Meanwhile, the import volume is expected to increase by 0.85 percent as people will opt for more affordable combinations of goods and services.

Source: https://en.tempo.co/read/1866649/minister-airlangga-hartarto-speaks-of-plans-to-increase-vat-to-12-percen