Rate Increased, Incentives Provided

KOMPAS/TOTOK WIJAYANTO

Busy citizens participating in the tax amnesty program at the head office of the Directorate General of Taxes (DGT), Jakarta.

JAKARTA, KOMPAS — As of 1 April 2022, the government has increased the rate of value-added tax (VAT) from 10 percent to 11 percent as mandated in Law No. 7/2021 on harmonization of tax regulations. A number of incentives are provided to protect people's buying power.

VAT of 11 percent rate is imposed on goods or services sold by taxable entrepreneurs, including clothing, bags, footwear, two-wheeled vehicles, houses, and video streaming services. Gold and basic goods, such as rice, corn, meat and eggs, as well as basic services like health and education fall under the VAT-exempt facility.

During a press conference over the weekend, taxation director Suryo Utomo of the Finance Ministry said that there were four main facilities and incentives to maintain consumer buying power in the wake of inflationary trends and rising VAT rates. First was a rate reduction in personal income tax (PPh) for incomes between Rp 50 million and Rp 60 million from 15 percent previously to 5 percent.

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Second was individual tax exemption for owners of small, micro and medium enterprises (MSMEs) with an annual turnover of up to Rp 500 million. Third was a final VAT facility of between 1 percent and 3 percent for certain types of goods and services in select business sectors, as regulated by a ministerial regulation. Fourth was an accelerated VAT refund process for entrepreneurs that paid tax.

Consumption gap

Center of Reform on Economics (CORE) Indonesia executive director Mohammad Faisal said on Sunday (3/4/2022) that despite the incentives and facilities, the VAT rate hike would make it more difficult for people in the middle and lower income groups to access those goods and services that the upper middle class had enjoyed so far. This condition, he said, was exacerbated by inflation in basic commodities, such as cooking oil, sugar, shallots, and chilies.

ALIF ICHWAN

Tax officers from the Pratama Jakarta Cilandak Tax Service Office, Jakarta, Friday (12/20/2019) served taxpayers who reported problems related to E-Faktur.

"Before the VAT rate increase, the prices of basic needs had already gone up, so the increase in the tax rate on other goods and services other than basic goods would emphasize the consumption gap between people of the upper and lower middle classes," Faisal said.

Faisal Rachman, an economist at PT Bank Mandiri (Persero), said the government’s efforts to recover the economy could be dampened by the persisting inflation, along with the increasing prices of nonsubsidized fuel oil and cooking oils, as well as the VAT rate increase.

In the same period, the CPI saw inflation of 0.66 percent. "This shows that the inflation risk continues from supply to demand.

Supply chain pressures, said Faisal, also tended to rise because inflation in the Wholesale Price Index (IHPB) had been higher than in the Consumer Price Index (CPI) since last year. Statistics Indonesia (BPS) launched the national IHPB in March 2022, which reached 108.46 that month, or an increase of 0.75 percent from February 2022. In the same period, the CPI saw inflation of 0.66 percent. "This shows that the inflation risk continues from supply to demand," he said.

Association of Indonesian Retailers (Aprindo) chairman Roy Nicholas Mandey said in a press release that the association had called on the government to promise not to apply the VAT rate hike on essential goods. He expressed hope that the government would guarantee this through the technical guidelines in the implementing regulations for the Tax Harmonization Law.

Roy added that despite the tax exemption for 11 basic commodities, including rice and unhusked rice, sugar, vegetables, fruits, soybeans, chilies, salt, milk, eggs, and corn, the Tax Harmonization Law classified several of these basic foods as objects subject to VAT.

"Up until now, Aprindo is still waiting for the technical implementing [regulations] on the addition of several types of basic and essential goods that are currently excluded from, or yet to be included in, the 11 percent VAT hike," he said. (DIT/LKT)

(This article was translated by Musthofid).