Heaptalk, Jakarta — Senior Economist of the Centre for Strategic and International Studies (CSIS) Deni Friawan has urged the government to evaluate the 12% VAT regulation that is set to be implemented in 2025.
“In our opinion, the 12% VAT needs to be reviewed because, given the current weak purchasing power, increasing the VAT could have a more severe impact on the economy. As a result, instead of increasing revenue, the decline in the economy could reduce revenue,” said Deni during a CSIS media briefing on the 2025 State Budget Draft (RAPBN) in Jakarta on Monday (08/19).
Deni understood the government’s rationale for raising the VAT to 12% to boost state revenue and the tax ratio. He also agreed that state revenue from taxes is still sluggish, with the tax ratio declining to 10.12%.
As of July 2024, the Ministry of Finance recorded total state revenue of Rp1,545.4 trillion, or 55.1% of the State Budget target, indicating a contraction of 4.3% compared to last year. Based on this data, total tax revenue up to July 2024 reached Rp1,045.32 trillion, or 52.56% of the State Budget target.
Furthermore, Deni assessed that the sluggish state revenue is primarily due to the ongoing global economic uncertainty and the downward trend in international commodity prices, making it challenging to increase state revenue, particularly taxes.
“On the revenue side, we recognize that we need to increase revenue; the tax ratio is still very low, only around 10%, and that’s lower than during the SBY (Susilo Bambang Yudhoyono) era. But that doesn’t mean that when we want to increase tax revenue, the approach should be to increase VAT from 11% to 12%,” he explained.
Additionally, while it is essential to continue improving the tax ratio, the economic impact must be carefully considered. Deni offered several steps the government could take. First, expanding the tax base and improving the efficiency of tax collection should be prioritized over raising tax rates. Second, tax incentives should be given more selectively, focusing on those that create jobs.
Meanwhile, CSIS Executive Director Yose Rizal Damuri stated that the 12% VAT increase regulation stipulated in the Tax Regulation Harmonization Law (UU HPP) does not necessarily have to be implemented but merely provides an option to raise VAT. According to him, the decision to implement it needs to consider the current economic conditions.
