By: Paramitha Anjani )*
The Indonesian government continues to demonstrate its commitment to maintaining economic stability and public welfare through measured fiscal policies, one of which is by adjusting the Value Added Tax (VAT) rate by one percent starting January 1, 2025. This step was taken by prioritizing the principles of justice, partisanship, and mutual cooperation, ensuring that no party is harmed, especially the most vulnerable groups in society.
Minister of Finance, Sri Mulyani Indrawati, explained that tax is one of the important instruments to encourage development while maintaining people’s purchasing power. In its implementation, the government prioritizes a selective and fair approach, ensuring that disadvantaged groups are protected from the impact of the policy. Basic necessities such as rice, eggs, milk, education services, and health services remain exempt from VAT, so as not to burden the general public.
As a form of support, the government provides various incentives to reduce the impact of the increase in VAT rates for lower-middle class people. For example, the VAT Borne by the Government (DTP) program of one percent for certain basic necessities such as wheat flour, industrial sugar, and cooking oil. This policy is designed to ensure that the prices of these goods remain affordable, even with tax rate adjustments.
In addition, the government has also launched a social protection package designed to help low-income communities, including providing 10 kilograms of rice per month to 16 million recipients through early 2025, as well as a 50 percent electricity discount for customers with certain power capacities. These steps show how the government is not only increasing tax revenue but also trying to protect the people who need it most.
The adjustment of VAT rates is also prioritized for goods and services that are considered luxury, such as premium food, VIP health services, and international standard education. Thus, this policy does not burden the consumption of goods and services that are essential for the wider community. The policy is based on the principle that groups with greater financial capacity should contribute more significantly through taxes, in line with the spirit of mutual cooperation that is the basis of this policy.
Expert Staff of the Minister of Finance for Tax Compliance, Yon Arsal, emphasized the importance of fair and selective tax collection. He explained that this approach aims to ensure a balanced distribution of the tax burden between community groups.
The government also provides special incentives to businesses and MSMEs, including the extension of the Final Income Tax rate of 0.5 percent until 2025 for certain MSMEs. This step is expected to encourage the growth of the micro, small and medium business sector as one of the main drivers of the economy.
On the other hand, the General Chairperson of the Indonesian Tax Consultant Association (IKPI), Vaudy Starworld, sees this policy as a strategic step to strengthen fiscal stability and increase state revenue. According to him, optimizing revenue from the VAT sector will have a positive impact on the government’s fiscal health, which will ultimately improve overall economic distribution.
Vaudy also highlighted that the increase in the VAT rate from 11 percent was in accordance with the mandate of the Law on Harmonization of Tax Regulations (UU HPP), which was designed to strengthen the fundamentals of the national economy.
However, the government continues to try to minimize the negative impacts that may arise. One way is to provide additional incentives for certain sectors, such as tax discounts for battery-based electric motor vehicles ( electric vehicles ) and taxes borne by the government for hybrid vehicles. These incentives are expected to encourage the use of environmentally friendly technology while accelerating the transformation towards a sustainable economy.
The government also demonstrated its commitment to listening to various inputs from the public and stakeholders regarding the implementation of this policy. This step is important to ensure that tax policies remain relevant and can support economic growth without creating an excessive burden on the public. In this regard, the implementation of the Tax Administration Core System (SIAP) by the Directorate General of Taxes starting in 2025 is an important step to improve the efficiency of tax administration and taxpayer compliance.
The 1 percent VAT rate adjustment is not only aimed at increasing state revenues, but also providing a stronger foundation for sustainable development in the future. The government understands that the success of this policy is highly dependent on transparency, accountability, and effective communication with the public. Therefore, efforts to improve tax literacy and provide a comprehensive understanding to the public about the objectives of this policy continue to be made.
Overall, this policy reflects a careful and measured approach in maintaining a balance between the needs of state revenue and community protection. With various incentives and exemptions provided, the government is trying to ensure that the VAT rate adjustment does not burden the common people. On the contrary, this policy is expected to strengthen the national economy and ensure the sustainability of inclusive and equitable development.
)* The author is a contributor to Pertiwi Institute
