By: Feronika Jasin)*
The Indonesian government has set a policy to increase the Value Added Tax (VAT) rate by 1%. This policy is expected to have a positive impact on state revenues while supporting the recovery of the national economy which has been depressed due to the COVID-19 pandemic. This step is part of the tax reform effort to create a fairer, more optimal, and more sustainable tax structure.
Chairman of the DPR Budget Agency, Said Abdullah said that the increase in the VAT rate from 11% to 12% is a mandate from Law Number 7 of 2021 concerning the Harmonization of Tax Regulations (HPP), which is also a joint decision between all factions in the DPR and the government. He added that the policy aims to create a fairer, more efficient taxation system and support sustainable economic growth.
This policy has a strong legal basis, considering that the HPP Law was designed to align tax regulations to be more responsive to the needs of the modern economy. One of the important points of the law is to create a fairer tax system, namely ensuring that tax contributions do not only come from certain groups but are evenly distributed according to the taxpayer’s ability. In the context of increasing VAT rates, the government maintains low-rate exemptions and facilities for goods and services that are considered vital to the needs of the community. This step aims to protect the purchasing power of low-income groups, so that social justice is maintained.
In the context of the state budget, the increase in VAT rates is projected to be able to make a significant contribution to tax revenues. The government stated that taxes are one of the main sources of financing for state spending, including for economic recovery programs and infrastructure development. With the increase in state revenues from the tax sector, the government has wider fiscal space to continue various strategic programs, such as the development of health facilities, education, and transportation infrastructure.
The statement by the Economic Policy Analyst of the Indonesian Employers Association (Apindo), Ajib Hamdani, that the increase in VAT rates could increase state revenues by up to IDR 80 trillion, highlights the fiscal dimension of this policy. The increase in VAT rates from 11% to 12% is a step that is considered strategic to strengthen the state budget, especially in supporting various development needs and economic recovery.
The additional potential revenue of Rp 80 trillion is certainly a significant figure in the context of state financing. With a budget of that size, the government can have greater fiscal space to implement various priority programs, such as infrastructure development, improving health services, education, and providing social assistance. Greater tax revenue can also help reduce dependence on foreign debt, so that the country’s fiscal position becomes more stable.
This policy is also seen as a response to Indonesia’s low tax ratio compared to other countries in the Southeast Asian region. By raising the VAT rate, the government is trying to improve tax performance to be more in line with international standards. A higher tax ratio is expected to strengthen Indonesia’s fiscal position and increase its global economic competitiveness.
However, this decision is not without challenges. Many parties are concerned that the increase in VAT rates will impact people’s purchasing power, especially for low-income groups. As a mitigation measure, the government stated that this policy was designed while still considering aspects of social justice. Certain goods and services, such as basic necessities, education services, and health services, still receive exemption facilities or lower VAT rates. This is intended to prevent excessive tax burdens on the lower class.
Director of Counseling, Services, and Public Relations of the Directorate General of Taxes, Dwi Astuti, explained that the results of the VAT rate adjustment policy have been returned to the people in various forms of development and community empowerment. He said that the direct benefits provided by the government from the taxes collected include programs such as Direct Cash Assistance (BLT), Family Hope Program (PKH), Food Cards, Smart Indonesia Program (PIP), and Smart Indonesia Card (KIP) for College. In addition, other benefits also include electricity subsidies, 3 kg LPG subsidies, fuel subsidies, and fertilizer subsidies.
From an economic perspective, the increase in VAT rates is expected to encourage fiscal stability, which is an important foundation in supporting economic growth. With stronger state revenues, the government can maintain the sustainability of the economic stimulus program that has been running since the beginning of the pandemic. In addition, this policy is expected to provide a positive signal to investors that Indonesia is serious about managing the budget responsibly.
To ensure the success of this policy, the government is also committed to improving tax administration, including utilizing digital technology. With a more efficient and transparent tax system, it is hoped that taxpayer compliance can increase, so that the potential for state revenue can be optimized.
Overall, the increase in VAT rates is a strategic step that not only aims to strengthen state revenues, but also supports the national economic recovery process. Although there is a potential impact on public consumption, the government is trying to minimize this risk through balanced policies. With proper implementation, this policy is expected to be the foundation for more solid and sustainable economic development in the future.
)* The author is an analyst of Akaria Indonesia
