12 percent VAT approved by DPR, government must implement it

SOLO – The 7th President of the Republic of Indonesia, Joko Widodo (Jokowi) also opened his voice on the pros and cons of increasing the value added tax (VAT) to 12 percent at the start of the next year. He said the VAT increase was approved by the DPR and the government was obliged to implement it.

According to Jokowi, the VAT increase is a mandate of the Tax Regulations Harmonization Law (HPP). In this regulation, he said, from January 1, 2025, VAT of 12 percent will have to be applied.

“Yes, it was decided within the framework of the harmonization of tax regulations, it was decided by the House of Representatives,” said Jokowi, at his residence, Sumber, Banjarsari, Solo, Friday (12/27/ 2024).

According to him, the increase in VAT to 12 percent was carefully studied. At that time, the government and the DPR conducted their own studies, before finally deciding that VAT would increase from 11 percent to 12 percent.

Therefore, Jokowi supports what President Prabowo Subianto will do. In addition, the government has prepared instruments to support the community.

“I think the government's decision must be considered and it is also a statutory mandate that the government must execute,” said the former mayor of Solo.

Furthermore, he added, the government has calculated the impact of a 12 percent increase in VAT on society, especially on the lower middle class. He said it is impossible for the government to issue regulations that will ultimately burden the public.

Therefore, the public must be able to respond more judiciously to the decisions of the government and the DPR. “Yes, the government should have calculated, made calculations and reflections,” Jokowi said.

The chairman of the PKB faction of the DPR, Jazilul Fawaid, believes that it is normal for a controversy to arise in society regarding the increase in VAT to 12 percent. However, he said, the increase in VAT to 12 percent was part of the implementation of the HPP Law.

The PKB faction of the DPR leaves it entirely to the government to implement the HPP Law appropriately and wisely, while anticipating the impact that will result from the VAT increase.

The PKB faction agreed to a 12 percent VAT increase in the hope that the government will continue to implement other economic policy programs that could reduce the pressure on price rises and the purchasing power of citizens, said Gus Jazil.

Deputy Chairman of the DPR Budget Agency fears that if the 12 percent increase in VAT is not accompanied by other economic policies, it will have an impact on the sluggish purchasing power of the population and could lead to economic stagnation.

Gus Jazil also highlighted that the economic recovery plan prepared by the government to anticipate economic disruptions after the VAT increase to 12 percent has been really well implemented.

“We in the House of Representatives will continue to ensure the proper functioning of the economic cushion or the recovery plan prepared by the government, because the decision was taken jointly,” Gus Jazil said.

For your information, to implement the 12 percent VAT policy, the government is offering incentives of up to IDR 265.6 trillion next year. This budget amount is allocated to lower middle class communities and MSMEs that are potentially affected by the VAT rate increase policy.

Bank Permata economist Josua Pardede estimated that this allocation of funds has the potential to increase economic growth which depends on effective implementation and supporting policies. The incentives and stimulus measures provided by the government have the potential to encourage long-term economic growth, Josua commented.

According to him, what the government is doing is right. So, overall, the incentive and recovery packages provided by the government have generally been designed to protect vulnerable groups and support the growth of the MSME sector, Josua explained.

Meet the Minister of Finance

The rejection of 12 percent VAT was also conveyed directly by the National Conscience Movement (GNB) to Finance Minister Sri Mulyani on Friday evening (12/27/2024).

NAM administrator Lukman Hakim Saifuddin said that during the meeting his party highlighted government policies seen as increasingly suppressing the purchasing power of middle-class people, especially those who are vulnerable to the post-pandemic economic situation.

The middle class is currently very burdened. There have been layoffs, income reductions and price increases for basic necessities. The plan to increase VAT to 12 percent will only make their conditions worse, Lukman said at the National Conscience Movement (NAM) press conference held online on Saturday (12/28/2024) .

Previously, Finance Minister Sri Mulyan said that until now, Indonesia's VAT rate is still relatively low compared to various countries around the world. It also compared VAT rates in Indonesia with those in a number of other developing countries.

VAT in Indonesia compared to various countries around the world is still relatively low, said Sri Mulyani.