Headline: Indonesia‘s Proposed PPN Hike: Balancing Economic Growth and Revenue Need
Subhead: Esther Sri Astuti, Indef director, emphasizes the importance of stable economic conditions and demand before increasing the PPN rate.
Article:
Indonesia is set to hike its Pajak Pertambahan Nilai (PPN) rate from 11% to 12%, as per the government’s plan to harmonize fiscal policies. However, Esther Sri Astuti, the director of the Institute for Development of Economics and Finance (Indef), suggests caution, stressing the need for a stable economy and consumer purchasing power.
Astuti believes that the theory proposed by economist Arthur Laffer supports her stance. "According to Laffer’s theory, first the economy grows, then tax revenue will increase. It’s not about raising the tax rate, we need the economy to grow," she explains.
The implementation of the PPN increase is targeted for 2025, but Astuti believes it’s crucial to assess the current and future economic conditions before proceeding.
"Political will is key here. We acknowledge that the economy is currently sluggish and less vibrant," she says, hinting at the possibility of delaying the hike if deemed unsuitable.
Astuti highlights a precedent set by Malaysia, which increased its sales tax and subsequently reduced it due to the negative impact on exports.
The PPN hike is primarily targeted at luxury goods consumed by high-income individuals. Simultaneously, the government plans to introduce a 0% tax for essential goods for lower-income households.
The Directorate General of Taxation (Ditjen Pajak) estimates that the PPN increase will only affect prices by 0.9%.
However, economists warn of potential loss in consumer purchasing power due to the PPN hike. The government, though, assures that economic growth will remain controlled and stable.
