Indonesia’s planned 12% VAT rate angers public, sparks ‘structural frugal living’ boycott
Analysts say the hike could add to the middle class’ financial burden, with some Indonesians planning to avoid buying goods subject to VAT
Indonesia’s plan to hike its value-added tax to 12 per cent next year has sparked public fury, with consumers claiming it will exacerbate economic hardship amid calls for a “structural frugal living” boycott of what some see as an unfair tax system.
The tax, known locally as PPN, is set to rise from the current 11 per cent on January 1, putting Indonesia on par with the Philippines as having the highest VAT rate among Asean countries.
The increase was announced last week by Finance Minister Sri Mulyani Indrawati, who said it was necessary to “keep the state budget healthy”, particularly amid “economic uncertainty and global geopolitical tension”.
She acknowledged, however, that the hike could weaken purchasing power in Southeast Asia’s largest economy.
“We need to provide a lot of explanations to the public. This means that even though we [already] make policies on taxes, including VAT, [we] should not blindly [implement it], and we should pay attention to [vulnerable] sectors such as health, education, even staple foods,” Sri Mulyani said on November 13.
The VAT hike is part of a set of measures that Jakarta plans to implement next year to boost its tax income. Officials have said the new rate will add about 70 trillion rupiah (US$4.4 billion) to the country’s coffers.
