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House suggests initial VAT rollout for just luxury goods
Following widespread backlash late last month on the government's plan to hike the VAT rate to 12 percent from Jan. 1, House Commission XI is proposing a selective implementation of the new rate to just luxury goods, both domestic and foreign.
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A shopper browses frozen foods at a supermarket on Sept. 3, 2024, in Cikutra, Bandung, West Java. (Antara/Raisan Al Farisi)
T
o protect consumers’ spending power, the House of Representatives has proposed that the increased value-added tax (VAT) rate be applied initially to certain luxury products when it kicks in on Jan. 1, after which it could be rolled out to all other goods.
Mukhamad Misbakhun, who chairs House Commission XI overseeing financial affairs, told a press conference on Thursday about the proposed plan, which he said derived from a meeting with President Prabowo Subianto earlier that day.
The discussion resulted in the idea for the VAT hike “will remain on schedule in accordance with the law, that is Jan. 1 2025, but will be implemented selectively,” Misbakhun said.
He was referring to Law No. 7/2021 on taxation, which mandates increasing the VAT rate from 10 to 11 percent on April 1, 2022, followed by a subsequent increase to 12 percent on Jan. 1, 2025.
Misbakhun also said the selective application of the new rate should apply to both domestically produced and imported luxury goods, so “the burden would be borne” by more affluent consumers while “poor people” continued to enjoy the current VAT rate of 11 percent.
He added that the government was “studying and undertaking a deeper review” of the proposal.
The government reaffirmed the VAT hike on Nov. 13 during a meeting between the Finance Ministry and House Commission XI, but questions arose about whether the planned hike would go ahead as the deadline neared, with multiple government officials refusing to answer media inquiries about the matter.
