** området
Widespread protest and a petition signed by nearly 200,000 people have been sparked by plans to increase Value Added Tax (VAT) to 12% starting in 2025. The move, stipulated in Law No. 7 of 2021, or the Law on Tax Organization Harmonization (HPP), has drawn fierce opposition from citizens who argue that it will disproportionately impact lower-income individuals and stifle economic recovery.
The Indonesian government, however, has stood firm, stating that the VAT increase is crucial for balancing the state budget and that several stimulus packages are in place to maintain household purchasing power temporarily. Nevertheless, demands to revoke the VAT increase remain loud and clear.
legal expert weighs in
Mhd Zakiul Fikri, the director of Hukum at the Center of Economic and Law Studies (Celios), believes that the government should swiftly reconsider the VAT hike due to the overwhelming backlash. He presents several scenarios that could alleviate the situation:
- Adjusting the VAT rate: As stipulated in the HPP Law, the VAT rate can be adjusted between 5% and 15%, providing a range of possibilities for review and reduction.
However, Zakiul notes that the current legal framework may cause confusion, as the criteria for determining the 5% to 15% range are ambiguous. Moreover, any changes would require joint implementation with the House of Representatives (DPR), which could prove to be a lengthy and complex process, given the approaching deadline of January 2025.
CALL FOR AN EMERGENCY REGULATION
Given these challenges, Zakiul proposes that President Prabowo Subianto initiate an emergency regulation, or Peraturan Pemerintah Pengganti Undang-Undang (Perppu), to circumvent the impending VAT increase. He argues that Perppu has been employed in the past, including by President Joko Widodo (Jokowi) in 2017, to address urgent fiscal matters.
A RARE SHOW OF UNITY
Unusually, Zakiul’s recommendation aligns with that of Hadi Poernomo, a former director-general of taxation at the Ministry of Finance and former chairman of the Supreme Audit Agency (BPK). Hadi also urges the government to revoke the VAT increase, citing its potential impact on low-income households and small businesses. He suggests that the VAT rate could be reverted to 10% through another decree.
The backdrop to this debate is a looming budget crisis. According to the 2025 State Revenue and Expenditure Budget, the government’s reliance on VAT for revenue has surged to 43.2%, raising concerns about the potential consequences of lowering the VAT rate.
Alash, the inevitable?
As the clock ticks down towards January 2025, the debate over the VAT increase continues to intensify. With the DPR currently in recess until mid-January, the focus turns to the government and President Prabowo to address the potential economic fallout of this contentious fiscal policy.
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