Government Provides Stimulus Package to Maintain Purchasing Power of People Affected by 1% VAT Adjustment
By: Rivka Mayangsari*)
The global and domestic economy that continues to face uncertainty demands smart and targeted policies to maintain people’s purchasing power. In facing this challenge, the Indonesian Government has announced a new policy aimed at ensuring that people’s welfare is maintained, despite the planned increase in Value Added Tax (VAT) rates that will be enforced on January 1, 2025. Coordinating Minister for Economic Affairs, Airlangga Hartarto, said that the change in VAT rates is part of tax reform that also includes a number of policies to protect people’s purchasing power.
According to Airlangga Hartarto, in accordance with the mandate of Law No. 7 of 2021 concerning Harmonization of Tax Regulations (HPP), the VAT rate will increase to 12% in 2025. He explained that this policy is an important step in increasing state revenue which in turn will be used to fund various development and social welfare programs. However, he acknowledged that this policy could have an impact on people’s purchasing power, especially for the lower middle class who are vulnerable to changes in the prices of goods and services due to tax increases.
For this reason, Airlangga emphasized that the government has prepared an Economic Stimulus Package aimed at reducing the negative impact of the VAT increase policy. This stimulus package includes various incentives that will be distributed to various levels of society, with the main focus on the community groups most affected by the change in VAT rates. One form of incentive prepared is VAT exemption or the application of a VAT rate of 0% for goods and services that are greatly needed by the general public, such as basic necessities, medicines, and public transportation.
The government projects that the VAT incentive will be exempted on goods and services needed by the community to reach IDR265.6 trillion in 2025. This is a strategic step to maintain the welfare of the community, especially those in the middle and lower economic classes. Airlangga explained that with this step, the government ensures that the basic needs of the community will not be affected by the increase in the VAT rate. Thus, it is hoped that this policy will not only support people’s purchasing power, but also encourage the sustainability of national economic growth.
Minister of Finance, Sri Mulyani Indrawati also revealed that the government will continue to optimize the State Budget (APBN) as the main instrument to support this policy. She stated that despite the planned increase in VAT, the government will remain committed to maintaining people’s purchasing power by providing direct assistance or subsidies to vulnerable sectors.
Sri Mulyani added that as a form of attention to the needs of the wider community, the government will bear the 1% increase in VAT for certain goods that are very much needed by the community, so that the community does not need to worry about uncontrolled price spikes. This policy is part of the government’s efforts to maintain economic stability amidst the growing global challenges.
Positive reactions to the stimulus package policy came from various sectors, one of which was the Head of Public Policy of the Indonesian Employers Association (Apindo), Sutrisno Iwantono. He welcomed the government’s move to pay special attention to the middle class who are currently facing economic pressure. Sutrisno assessed that the middle class is one of the groups most affected by the 12% VAT increase policy, which will take effect in January 2025.
Sutrisno hopes that this stimulus package policy can strengthen people’s purchasing power, especially in the middle class who are facing economic pressure, both in terms of the price of basic necessities that continue to increase, and in terms of increasingly complex taxes. He emphasized that the government should indeed provide support so that the purchasing power of the middle class is maintained.
In addition, Sutrisno also suggested that the scope of this stimulus package be expanded, not only focusing on fiscal policy, but also on efforts to strengthen economic sectors that can have a direct impact on increasing people’s income. He argued that this stimulus must be right on target and target sectors that have a large multiplier effect on the people’s economy, such as the MSME sector and the staple goods industry.
The stimulus package announced by the government is certainly a breath of fresh air for the community, especially those affected by various economic pressures. The Indonesian government, through the policies that have been prepared, is trying to protect the community from the impact of inflation and tax rate increases that could potentially reduce purchasing power. Government support for the community will remain a top priority, both in the form of fiscal policies and the provision of facilities that can reduce the burden on the community amidst an economic situation full of uncertainty.
With the right policies and targeted stimulus packages, Indonesia is expected to maintain the momentum of economic growth, ensure social stability, and maintain the welfare of all levels of society. The government, through tax reform policies and incentives, has proven its commitment to protecting people’s purchasing power and keeping the economy growing despite challenging situations.
*) Economic observer
