JAKARTA – The government and the House of Representatives (DPR) have agreed to implement an increase in Value Added Tax (VAT) to 12 percent (a 1% increase from before) in 2025. This policy is a strategic step to support the realization of President Prabowo Subianto’s various Quick Win programs, which require significant financing through the 2025 State Budget (APBN).
Chairman of the DPR Budget Agency (Banggar), Said Abdullah, explained that the increase in VAT had been designed in stages based on the mandate of Law Number 7 of 2021 concerning the Harmonization of Tax Regulations (HPP).
“The increase in VAT is not actually an event that comes suddenly. Before April 1, 2022, the VAT rate was 10 percent. After Law No. 7 of 2021 came into effect, the implementation of the VAT rate increase was regulated to 11 percent as of April 1, 2022, and then on January 1, 2025 the VAT rate became 12 percent, thus there was a gradual increase,” Said explained.
In the discussion of the 2025 State Budget, the government and the DPR agreed to include additional tax revenue from the increase in VAT into the state revenue target. Said emphasized that these funds will be allocated to support various strategic programs. These programs include Free Nutritious Meals (MBG) of IDR 71 trillion, Free Health Check-ups of IDR 3.2 trillion, and the construction of Complete Hospitals in the regions of IDR 1.8 trillion. In addition, a budget of IDR 8 trillion will be used for Infectious Disease Check-ups such as TB, IDR 20 trillion for School Renovation, and IDR 2 trillion for the development of Integrated Leading Schools. Not to be missed, the government also allocated IDR 15 trillion for the development of National, Regional, and Village Food Barns.
The increase in VAT rates is expected to have an impact on people’s purchasing power. Therefore, Said emphasized the importance of risk mitigation measures by the government, especially to protect vulnerable groups.
“This mitigation can be in the form of expanding the social protection budget, subsidies for fuel, LPG gas, and electricity for poor to middle-class households, as well as public transportation and housing subsidies for the lower middle class,” he said.
Said also proposed increasing skills training and economic empowerment programs for affected communities. This step is expected to help them adapt to economic changes.
Member of the House of Representatives Commission VI, Herman Khaeron, also expressed his support for this policy, noting that the government must ensure that this policy is fair.
“I believe that this VAT increase is also followed by strategic steps, such as increasing pro-people programs and providing significant incentives. This is important to maintain people’s purchasing power and support overall economic growth,” Herman said.
Herman acknowledged the public’s concerns about the impact of the VAT increase, especially on the prices of other goods and services. However, he emphasized that the government has carefully considered all aspects, including taking mitigation steps to reduce the negative impact on the community.
Meanwhile, Co-Founder, Tumbuh Makna, Benny Sufami stated that the 1 percent increase in VAT rates is a momentum for the community, especially investment actors, to develop more adaptive strategies.
“With the right strategic steps, this change can be faced optimistically and even provide long-term benefits,” he said.
Benny also believes that the increase in VAT rates has a positive purpose, namely increasing state revenue which will later be channeled back to the education, health, infrastructure and other government programs. [*}
