Minister of Finance Affirms VAT Increase Will Stay Effective on April 1

VAT or PPn

The increase in Value Added Tax or VAT rate which is still being reviewed has finally received clarity. Recently, the Minister of Finance Sri Mulyani Indrawati stated that the value-added tax or VAT rate increase will remain in effect on April 1, 2022.

Sri Mulyani emphasized that the reason for the stipulation of the VAT increase was because the government carried out the mandate of Law Number 7/2021 concerning the Harmonization of Tax Regulations (UU HPP) related to VAT rates.

The regulation explains that the VAT rate will increase to 11 percent on April 1, 2022.

“[The VAT rate increase is not postponed] because [the government] uses it to return to society. The foundation must be prepared first [through strengthening the tax regime],” Sri Mulyani said on Tuesday (22/3/2022).

Furthermore, Sri Mulyani explained that Indonesia’s VAT is very small compared to other countries. The global average VAT is 15 percent, while in Indonesia it is only 10 percent. Therefore, the government thinks there is still room to increase the VAT percentage.

She told, “We see that VAT space still exists, we increase it by only 1 percent. We understand that the focus is now on economic recovery. However, a strong tax foundation must be built.”

According to her, state revenue is an important aspect to encourage economic recovery, because it can support various subsidies and development. Therefore, the HPP Law increases the potential for receipts in various posts, such as income tax (PPh) and VAT.

Sri Mulyani said that VAT was closely related to people’s consumption ability. Therefore, the government distributes social assistance to maintain the level of public consumption, especially the lower classes.