It must be ensured that the changes to the tariff scheme that will be applied on strategic goods and services should not add a burden to the people and must be in favor of the greatest interests of the lower class group
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The government’s plan to increase the Value Added Tax (VAT) rate on strategic goods and services has triggered public discussion.
In the draft revision of Law Number 6 of 1983 concerning General Provisions and Tax Procedures, which was circulated in the media, the government plans to expand the taxable objects in an effort to further boost tax revenues. The trick is to change the scheme and remove certain types of goods and services that are excluded from the tax object, in this case the Value Added Tax (VAT).
The goods and services mentioned include basic necessities, baby formula, educational services such as private schools, and health services, including maternity homes. The plan has been met with an immediate response from the public because it is feared that it will increase the burden on people who have been hit hard by the Covid-19 pandemic.
From what we see, there is a distortion of information so that the plan to improve tax performance that the government wants to take has been interpreted wrongly, thus creating unrest in the community.
Amid the opposition from the public, a number of economists have proposed that the plan to change the VAT scheme should , instead, be carried out through the Finance Minister’s regulation .The inappropriate timing in implementing this policy can also cause consumers to reduce spending. As a result, it can affect the household spending and the recovery of the national economy.
We welcome the steps of tax reform to improve performance, which is still far from optimal. Indonesia’s low tax ratio compared to many other countries, and the large contribution of taxes to state revenues pose a challenge for the government to continue to explore tax potential, without burdening the economy as a whole.
Of the state revenue target of Rp 1.74 quadrillion (US$122.50 billion) in the 2021 state budget , Rp 1.44 quadrillion or 82.8 percent is expected to come from taxes and the rest from non-tax state revenues. However, in reality, tax revenue during the first quarter of 2021 totaled only Rp 228.1 trillion, a 5.6 percent decline year-on-year (yoy) due to stagnation in the business world that have not yet recovered from the impact of the pandemic.
We also appreciate the government\'s swift response to public input and complaints, by redesigning the draft revision of Law No. 6/1983, particularly regarding VAT.
From the statement of the expert staff of the Finance Minister for strategic communications, Yustinus Prastowo, we understand that that the current VAT exemption has so far too broad, making it difficult for the government to optimize tax revenues. A potential move could be to alter the VAT rate into three tariff schemes: general tariff, multi-tariff and final tariff.
It must be ensured that the changes to the tariff scheme that will be applied on strategic goods and services should not add a burden to the people and must be in favor of the greatest interests of the lower and middle class groups who are most affected by Covid-19. Otherwise, it can cause injustice, if the government continues to provide tax incentives on the sale of luxury goods mostly consumed by the affluent. The optimization of VAT should not threaten economic recovery.
This article was translated by Hendarsyah Tarmizi.