Heaptalk, Jakarta — The government has signaled that the planned increase in the Value Added Tax (VAT) rate from 11% to 12% will remain applicable in 2025. This plan is expected to pressure the purchasing power of the public, particularly the lower-middle class.
To address this, the Economic Policy Analyst from the Indonesian Employers Association (Apindo), Ajib Hamdani, proposed two recommendations the government could implement regarding the planned increase in VAT to 12%.
The first suggestion concerns the Non-Taxable Income (PTKP) threshold. According to Minister of Finance Regulation Number 101 of 2016, the PTKP amount is Rp54 million per year, equivalent to an income of Rp4.5 million monthly. Ajib emphasized the government could raise the PTKP threshold to maintain public purchasing power.
The first suggestion concerns the Non-Taxable Income (PTKP) threshold. According to Minister of Finance Regulation Number 101 of 2016, the PTKP amount is set at Rp54 million per year, equivalent to an income of Rp4.5 million per month. Ajib suggests the government could raise the PTKP threshold to maintain public purchasing power.
“The government could, for example, raise the PTKP to Rp100 million. This could boost the purchasing power of the lower-middle class. In this group, any increase in purchasing power is likely to be spent, thereby circulating money back into the economy and generating revenue for the state,” he explained.
The second recommendation concerns taxes. The government could allocate VAT borne by the government (DTP) for sectors that serve as economic drivers, such as the property or agriculture, fisheries, and livestock sectors that can encourage downstream processing. However, he noted that tax policies should still incentivize the private sector to continue operating effectively. State revenue needs to be maintained to ensure prudent fiscal management.
“In principle, the government must carefully consider the policy to raise VAT rates. Fiscal incentives must be relevant to the public’s purchasing power and ensure that the business sector continues to operate well. Consistent economic growth above 5% requires fiscal policies that support growth,” he concluded.
