By: Clara Diah Wulandari)*
The government’s move to cancel the planned increase in Value Added Tax (VAT) to 12 percent brings a breath of fresh air to the community. With this decision, VAT remains at 11 percent, except for goods that fall into the Luxury Goods Sales Tax (PPNBM) category. This policy not only provides economic certainty, but also signals that the government is committed to maintaining people’s purchasing power amidst global economic challenges.
At a time when many countries are grappling with high inflation and the threat of recession, Indonesia has chosen to protect its people through a series of economic stimuli that are expected to drive recovery. This decision confirms that the government understands the urgency of giving people room to breathe amidst the increasing economic pressure.
Finance Minister Sri Mulyani Indrawati stated that although the VAT increase was canceled, the government would continue with various stimulus packages that had been designed to support economic recovery. On one occasion, she emphasized that this stimulus was intended to ease the burden on the community while ensuring that national economic stability was maintained.
Some of the planned assistance programs include the distribution of 10 kilograms of rice to 16 million beneficiary families in the period from January to February 2025. In addition, electricity customers with a capacity of 2,200 VA or lower will enjoy a 50 percent bill discount for the same period.
Moreover, the government’s fiscal policy also targets the small and medium enterprise (UMKM) sector. The policy in the form of an extension of the Final Income Tax by 0.5 percent for UMKM actors and tax exemption for businesses with a turnover of less than IDR 500 million per year is a breath of fresh air for this sector. This effort is believed to be able to strengthen the foundation of the micro economy which is the backbone of the national economy.
Not only that, additional incentives in the form of PPh Article 21 relief for workers with incomes of up to IDR 10 million per month, a 5 percent interest subsidy for machine revitalization in the labor-intensive sector, and 50 percent work accident insurance assistance for the next six months show that this policy has a comprehensive dimension. This step is combined with easy access to the Job Loss Guarantee (JKP) program, incentives for purchasing electric vehicles, and houses, creating synergy between social and economic policies.
Coordinating Minister for Economic Affairs Airlangga Hartarto explained that this step is part of the government’s grand strategy to maintain national economic stability. However, criticism still arises. Several economic observers believe that these temporary stimuli only have a short-term impact. The decision to maintain VAT at 11 percent was taken after considering the potential impact of the tax increase on people’s purchasing power.
Deputy Chairman of the DPP PAN, Saleh Partaonan Daulay, said that his party appreciated the Government’s efforts in maintaining the economic stimulus package as an effort to protect the community. The government’s policy of only imposing 12% VAT on luxury goods and continuing the economic stimulus package is a wise choice and far from image politics.
Of course, the decision not to raise VAT is still a breath of fresh air for the wider community and business actors. The absence of a tax increase gives consumers the freedom to manage their spending without additional burden.
This, in turn, creates space for businesses to design more adaptive business strategies to global economic challenges. In this uncertain situation, the government is expected to continue to evaluate so that existing policies remain relevant and effective in accordance with changing economic conditions.
The government’s decision to cancel the VAT increase is a strategic step that reflects a commitment to maintaining public welfare. Amid global economic uncertainty, this policy provides breathing space for the public and business actors, while ensuring that purchasing power is maintained. By maintaining VAT at 11 percent and continuing various stimulus programs, the government shows that they are not only focused on economic stability, but also on the aspects of inclusivity and policy sustainability.
This step is also real evidence that the government is listening to the aspirations of the people. At a time when many parties are worried about the impact of tax increases on the burden of daily life, this decision comes as a solution that is expected to have a positive impact on a wide scale. However, this policy should not just stop at a temporary level. Continuous evaluation and long-term policy innovation are needed to face increasingly dynamic economic challenges.
Ultimately, an inclusive fiscal policy like this must be accompanied by strong synergy between the government, business sector, and society. That way, the common goal of creating stability and sustainable economic growth can be achieved. This decision may not be the answer to all economic problems, but it is an important first step towards a brighter and more prosperous future.
)* The author is a contributor to the Nusantara Reading Room
