Implementation of 12% VAT for Luxury Goods is Evidence of Government’s Partisanship for the Community
By Dania Wiastika )*
The implementation of a 12 percent Value Added Tax (VAT) for luxury goods and certain services that are classified as very luxurious is one of the government’s strategic steps in showing its support for the people. President Prabowo Subianto’s decision to limit the VAT rate to only certain categories is an effort to create a fairer taxation system, while also providing a positive signal to the national economic conditions.
At the end of 2024, the government decided that the increase in VAT, which was originally planned to apply generally, would be limited only to goods and services subject to Luxury Goods Sales Tax (PPnBM). This policy not only eases the burden on the wider community, but also shows the government’s sensitivity to economic dynamics, especially people’s purchasing power which is still in the recovery stage.
This step was appreciated by various groups, including the Chairperson of the Indonesian Employers Association (Apindo), Shinta Widjaja Kamdani. She considered that the VAT rate limitation reflects the government’s sensitivity to the challenges faced by the business world. This policy is considered capable of providing space for the business sector to continue to grow amidst challenging conditions, without having to be burdened by significant tax increases.
In addition, this policy is also in line with the principle of fairness in the taxation system. Economic observer from the Permata Institute for Economic Research (PIER), Josua Pardede, emphasized that luxury goods are generally consumed by high-income people. Therefore, setting a higher VAT rate for these goods creates a tax burden that is more proportional to the ability to pay. In other words, this policy distributes the tax burden more fairly, without adding pressure to people with low or middle incomes.
For the general public, this decision is proof that the government truly prioritizes their welfare. Amidst various global economic pressures, people’s purchasing power is one of the important indicators that must be maintained. By maintaining the 11 percent VAT rate for general goods and services and continuing to exempt certain categories from tax, the government provides space for the public to continue to meet their daily needs without having to worry about significant cost increases.
This step is also seen as a form of visionary leadership from President Prabowo. The Head of the Prosperous Justice Party (PKS) faction of the DPR, Jazuli Juwaini, said that the decision shows a real bias towards the common people. Although the increase in VAT rates to 12 percent is a mandate from the Law on Harmonization of Tax Regulations (UU HPP), the government has managed to find a way to implement the policy without sacrificing the interests of the wider community.
More broadly, this policy shows the government’s commitment to creating economic stability. By maintaining people’s purchasing power while distributing the tax burden fairly, this policy can help increase public trust in the government. This is important to create a conducive investment climate, which will ultimately provide long-term benefits for the national economy.
In addition, the selective implementation of VAT also has a positive impact on the business sector. The business world, which is currently facing various challenges, needs policies that can provide certainty and space to grow. By not implementing a comprehensive increase in VAT rates, the government is providing much-needed support for this sector. This is in line with efforts to create a more competitive and sustainable business environment.
Not only for large business actors, this policy also has a positive impact on small and medium enterprises (SMEs). By continuing to apply lower VAT rates for general goods and services, SMEs can continue to operate without being burdened by increased production or distribution costs. This provides an opportunity for the SME sector to grow and contribute more to the national economy.
This decision also sends a strong message about the direction of government policy under President Prabowo’s leadership. In facing global economic challenges, policies that favor the people are very important to maintain social and economic stability. With this step, the government shows that they are not only following the rules, but also trying to ensure that the policies implemented truly provide benefits to all levels of society.
On the other hand, this policy also serves as an example of how the government can make flexible and responsive decisions to current situations. By adjusting tax policies according to economic conditions, the government shows that they are able to act quickly and appropriately to maintain a balance between the interests of the state and the welfare of the community.
The implementation of a 12 percent VAT rate for luxury goods and certain services that are considered very luxurious is clear evidence of the government’s commitment to the people. This policy not only reflects the government’s sensitivity to the national economic conditions, but also shows a commitment to creating a fairer taxation system. With this step, the government has succeeded in maintaining people’s purchasing power, supporting the business sector, and providing certainty in facing global economic challenges. This decision is not only worthy of appreciation, but also an inspiration for other policies in the future.
)* the author is an Economic Policy Observer
