By: Andika Pratama )*
The government has set a policy to increase the Value Added Tax (VAT) rate to 12 percent which will take effect starting in 2025. However, it is important to emphasize that this VAT increase is only for luxury goods and services, as stipulated in the Minister of Finance Regulation (PMK) Number 15 of 2023. This step reflects the government’s efforts to maintain fiscal balance while protecting the purchasing power of the wider community.
Goods and services subject to a 12 percent VAT rate include very limited categories, such as houses with a selling price of more than IDR 30 billion, yachts, private jets, and non-military firearms. Finance Minister Sri Mulyani Indrawati explained that these goods not only reflect luxury but are also generally consumed by people with high incomes. Thus, this policy will not affect the basic needs of the general public, such as food, public transportation, and educational services, which remain VAT-free or are subject to the standard 11 percent rate.
President Prabowo Subianto emphasized that this policy was designed to maintain a balance between state revenues and the sustainability of people’s purchasing power. The President ensured that goods and services that are basic necessities remain free from VAT rate increases. Acting Governor of Gorontalo, Rudy Salahuddin, also said that this policy fully reflects the government’s commitment to protecting the people, especially from the impacts of inflation and economic inequality.
The increase in VAT rates is not only oriented towards increasing state revenues, but also as an instrument of redistribution. Luxury goods that are subject to higher rates are basically goods that are not consumed by the majority of society. By maximizing the contribution of luxury goods consumption, the government seeks to create economic equality through various subsidy and incentive programs allocated to the productive sector and vulnerable community groups.
Concrete steps have been taken by the government to support the community amidst economic challenges. Incentive policies including food aid, electricity discounts, and the elimination of income tax (PPh) for micro, small and medium enterprises (MSMEs) with a turnover of less than IDR 500 million per year are real evidence. In addition, tax incentives are given to labor-intensive sectors to maintain economic stability and encourage job growth.
This policy is also designed to provide space for MSMEs to continue to grow amidst competition. Sri Mulyani said that the extension of the validity period of the 0.5 percent Final Income Tax until 2025 is a form of government support for MSMEs. In this context, the 12 percent increase in VAT on luxury goods is expected to close the gap in state revenue without burdening other economic sectors.
Director General of Taxes, Suryo Utomo added that the goods affected by the increase in VAT are goods that were previously subject to Luxury Goods Sales Tax (PPnBM). This shows the continuity of the policy that is not sudden or creates uncertainty for the community. These goods have special criteria, such as not being included in basic necessities and tend to be consumed by certain groups to show social status.
On the other hand, the government ensures that VAT rates for goods and services needed by the general public remain stable. For example, basic necessities such as rice, sugar, fresh milk, and public services such as public transportation and education remain VAT-free. This is a real manifestation of the government’s commitment to supporting the basic needs of the people.
As part of the grand strategy, the VAT increase policy is also accompanied by an economic stimulus program targeting strategic sectors. The government has allocated funds of up to IDR 265.6 trillion to support vulnerable communities and strengthen the resilience of the economic sector. Food assistance programs, incentives for electric vehicles, and optimization of job loss insurance (JKP) are part of this effort.
This equitable approach also shows that tax policy is not only oriented towards state revenues, but also pays attention to social and economic aspects. The government emphasized that this policy has been designed by taking into account its impact on society, especially low-income groups.
This policy is expected to support sustainable development and strengthen the national economic base. By focusing on luxury goods, the government is sending a message that fiscal sacrifices must be made by those with greater ability, while vulnerable groups are still protected.
With a clear policy direction and transparent communication, it is believed that the increase in VAT will not cause social unrest. Instead, the public is expected to see this policy as a joint effort to create economic justice. In the long term, this policy is expected to strengthen fiscal stability while encouraging inclusive economic growth.
Through a combination of targeted tax policies and economic stimulus, the government shows that the interests of the people remain a top priority. This commitment reflects a broader vision to create prosperity for all levels of society.
)* The author is a contributor to jabbartrigger.com
