1% VAT Increase Only for Luxury Goods, Proof that Government Accommodates Public Aspirations
By: Moh Jasin )*
The government continues to strive to balance fiscal policies that favor the wider community while maintaining the sustainability of the state budget. One of the latest policies is the adjustment of the Value Added Tax (VAT) rate of 12% which is only applied to certain luxury goods. This policy is considered a manifestation of the government’s attention to the aspirations of the community who want fairer taxes that do not burden low- and middle-income groups.
In the revised regulation, the government stipulates that basic necessities and essential services will still be subject to low-rate VAT, and some will even be exempt from tax. Meanwhile, the 12% VAT rate is directed only at goods that are categorized as luxury or not basic necessities.
The General Chairman of the Indonesian Food and Beverage Entrepreneurs Association (GAPMMI), Adhi S Lukman, stated that he had no objection to the implementation of 12% Value Added Tax (VAT) for luxury goods. According to him, this policy will not have a major impact, because the upper middle class segment has quite strong purchasing power.
From a policy perspective, the implementation of higher VAT rates for luxury goods can be considered a progressive step. This policy signals that the government wants to strengthen the principle of fairness in the tax system. Those with greater economic capacity will make a more significant contribution to state revenues, while low- and middle-income people remain protected from additional tax burdens.
The policy emerged in response to various inputs received by the government, both from academics, business actors, and civil society. So far, the criticism that often arises is that the increase in VAT is feared to trigger inflation and reduce people’s purchasing power, especially those in the lower middle economic class. The government, through this policy, wants to ensure that such impacts can be minimized.
Secretary of the Coordinating Ministry for Economic Affairs, Susiwijono Moegiarso, said that the determination of luxury commodities that will be subject to 12 percent VAT is under the authority of the Directorate General of Taxes (DJP) of the Ministry of Finance. Susiwijono Moegiarso explained that tax exemptions for several commodities have been regulated in PP Number 49 of 2022, which regulates VAT exemption or not collected for certain goods and services. President Prabowo assigned the Minister of Finance to formulate a list of further exemptions. This strategic step also reflects the government’s efforts to create a more progressive taxation system.
PP Number 49 of 2022 has provided initial guidance, but there is still room for more specific regulations. In this case, the role of the Directorate General of Taxes becomes very strategic. Clarity in the definition and category of luxury goods subject to 12% VAT will determine the success of this policy in the field. For example, goods such as luxury vehicles, jewelry, or electronic goods with sophisticated technology can fall into this category. On the other hand, goods related to basic needs or those that are supporting tools for small and medium enterprises (SMEs) need to be excluded so as not to cause a domino effect that is detrimental to the productive sector.
In addition to providing a positive impact on fiscal justice, the implementation of the 12% VAT rate is also expected to increase state revenue without increasing the burden on society at large. The results of the tax revenue will later be used to finance various development programs, including infrastructure, education, and health.
Chairman of Commission XI of the House of Representatives, Misbakhun, explained that the implementation of a 12 percent VAT rate for luxury goods consumers was the result of discussions between the House of Representatives and President Prabowo. He stated that the rate was applied selectively, both for domestic goods and imported goods categorized as luxury goods. Misbakhun emphasized that the government only charges this rate to consumers who buy luxury goods, so this policy will not impact the general public.
This policy also emphasizes the importance of the principle of selectivity in the taxation system. Not all goods are subject to high tariffs, but only those that fall into the luxury goods category. This approach ensures that tax policies are not evenly burdensome, but still create fairness. Thus, the implementation of 12% VAT is not only a source of state revenue, but also a tool to indirectly encourage economic redistribution.
Supervision of policy implementation in the field must be tightened. Without proper supervision, there is a risk of manipulation or tax avoidance by certain parties. The government needs to ensure that consumers who can actually afford luxury goods are the ones who bear the burden of the tax, not small business actors or other community groups who should not be affected.
The government also emphasized the importance of transparency in implementing this rule. Socialization regarding what goods are included in the luxury goods category has been carried out massively so that the public gets clear information. In addition, supervision efforts have also been tightened to prevent tax avoidance practices that can harm the country.
With a focus on luxury goods, this VAT rate adjustment is proof that the government is trying to find a balanced solution between the needs of the state and the interests of the community. This policy is expected to create a fairer, more transparent and sustainable taxation climate for the future of the Indonesian economy.
)* Digital Economic Policy Observer – Nusantara Digital Economic Institute
