By: Gavin Asadit )*
The Indonesian government will increase Value Added Tax (VAT) from 11% to 12% in January 2025. However, this policy only applies to goods and services categorized as luxury. This step is considered a fair strategy to increase state revenue without putting pressure on the majority of lower-middle class people. The 1% VAT increase policy is also a government step in realizing national economic strengthening in order to improve welfare for the entire community where the state tax will later be returned in full to all Indonesian people with the aim of improving community welfare.
According to Finance Minister Sri Mulyani, this policy aims to reduce socio-economic inequality and the decision to increase the VAT rate by 1% which will be enforced starting in 2025 can strengthen state revenues in facing global economic challenges and support the development of all forms of infrastructure as a form of service to the community.
In addition, the Government also emphasized that this policy is not only aimed at increasing income, but also providing a moral message to the wealthy to be more concerned about social inequality. He explained that the tax revenue from luxury goods will be allocated to important sectors, such as education, health, and infrastructure development in underdeveloped areas. In other words, this tax increase is one way to strengthen the national economy by utilizing contributions from the upper class.
Furthermore, Director of the Center of Economic and Law Studies (CELIOS), Bhima Yudhistira stated that the increase in VAT on luxury goods can increase tax revenue without having a significant impact on inflation. According to him, the consumption of premium goods is elastic, so that price increases due to taxes will not drastically reduce demand. This is different from basic necessities, where tax increases can directly hit the purchasing power of the wider community.
In addition, Faisal Basri, a Senior Economist, assessed that this policy is in line with the principle of progressive taxation. He explained that this policy not only increases state revenues, but also encourages the awareness of the wealthy to contribute more to development. Faisal emphasized that the government must ensure that the implementation of this policy runs transparently and efficiently so that the results are maximized.
Meanwhile, the increase in VAT rates is regulated in Law Number 7 of 2021 concerning the Harmonization of Tax Regulations (UU HPP), which sets the VAT rate at 11% starting April 1, 2022 and 12% no later than January 1, 2025. This step was taken to increase state revenue posts and to strengthen the national economy in facing global economic challenges.
However, this policy also faces challenges, especially from business actors in the luxury goods sector. They are concerned about the decline in purchasing power of upper-class consumers which could impact sales. Shinta Widjaja Kamdani, Deputy Chairperson of the Chamber of Commerce and Industry (KADIN), said that price adjustments due to the increase in VAT could reduce the profit margin of business actors. However, she also acknowledged that this policy is more targeted than increasing VAT across the board.
In practice, the government plans to use the proceeds from this tax to support more equitable development of infrastructure, education, and health services. Sri Mulyani explained that additional revenue from luxury goods VAT will be used to finance priority programs that support long-term economic growth. This step is also expected to improve Indonesia’s tax ratio, which is currently still below the average for developing countries.
The government’s policy of increasing VAT on luxury goods and services is in line with Indonesia’s need to create a more equitable taxation system. Furthermore, this VAT increase policy is considered the right decision amidst the country’s efforts to strengthen tax revenues, which will later be used to finance strategic programs.
With effective socialization, this policy is expected to be accepted by all parties. The government has also prepared a monitoring plan to ensure that business actors do not take advantage of this policy to unilaterally raise prices. This policy certainly requires active participation from all parties, both the community and business actors. The government is expected to continue to conduct socialization to provide a clear understanding of the objectives and benefits of this policy. With a transparent and measurable approach, the increase in VAT on luxury goods can be an important milestone in Indonesia’s journey towards a more equitable economy.
Overall, the increase in VAT for luxury goods and services is an important step in strengthening the national economy. This policy not only increases state revenue, but also creates social justice by imposing higher taxes on the wealthy. Although there are challenges in its implementation, this policy has great potential to support sustainable development and reduce economic inequality in Indonesia. Let’s together support the 1% VAT increase policy that has been carefully calculated by the government in order to strengthen state revenue to improve the welfare of the entire community through various developments and improvements in public services.
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)* The author is an observer of social and community issues