Value Added Tax (PPn) Will Rise, When Does It Take Effect?

The Law on the Harmonization of Tax Regulations (UU HPP) was enacted on October 29, 2021, ago. However, not all of the provisions in the Act apply. Among them, namely the provisions regarding changes to the Value Added Tax Law (PPn) which will only take effect on April 1, 2022.

One of the changes that have not yet taken effect is the adjustment of the VAT rate from 10% to 11%. The 1% rate change was carried out as a policy step taken by the government to increase VAT revenues and provide a sense of justice for the consumption sector.

This decision is made for people who have high consumption abilities so that they can pay more taxes, thereby contributing to economic equality.

In addition, for almost 3 decades applied in Indonesia, VAT only applies a single rate of 10%. According to the other countries, this tariff is relatively low. The average global VAT rate ranges from 11-30%, such as the Philippines 12%, China 13%, Saudi Arabia 15%, Turkey 18%, Germany 19%, UK 20%, and Denmark 25%. So that the increase in the VAT rate to 11% is still considered moderate or reasonable among the average rates of other countries.

The increase in tariffs also catches up with the momentum of economic growth. As is known, the Indonesian economy in 2021 will grow by 3.69% from the previous year. Even in 2022, the government is optimistic that economic growth can reach 5.2%. So that the increase in VAT rates should be felt reasonable amid an increasing economy.

In addition, an increase in the VAT rate can be one of the government’s steps to restore the fiscal deficit below 3% of GDP as mandated in the law. This deficit narrowing is of course in line with other fiscal policy measures such as increasing various state revenues, providing incentives, and sharpening spending allocations.

Although it aims to create economic justice, it is normal for an increase in tax rates to experience resistance. When it began to be discussed in mid-2021, changes to the VAT provisions in the draft HPP Law experienced a warm discussion. One of the discussions that surfaced was the impact of tariff adjustments on price increases. The addition of a 1% VAT fee on goods or services is feared that some people will increase prices.

Furthermore, in terms of Income Tax (PPh), several supporting fiscal policies have been regulated. The HPP Law regulates the imposition of an income tax rate of 5% on net income, which is now set at 60 million from the previous 50 million. Taxpayers who have a net income of up to 60 million can still enjoy a rate of only 5%.

However, the implementation of the VAT rate adjustment in April will not be without challenges. As is known, April this year coincides with the month of Ramadan. Usually, as in previous years, there is an increase in prices due to shopping activities during Ramadan and Eid celebrations.

Another thing that can increase prices in April is the condition of the Covid-19 pandemic. As of March, the pandemic has shown no sign of abating. Restrictions on economic activity due to the ongoing pandemic can also push prices up.

Furthermore, globally there are tensions in eastern Europe. The conflict between Russia and Ukraine could result in soaring global crude oil and natural gas prices. The increase in the price of these two commodities often triggers an increase in the price of other goods and services.

Therefore, later in April, it is predicted that the price increase could be a necessity. So the government needs to mitigate the risk of price increases that will occur, especially about the adjustment of VAT rates. First, the government needs to control prices so they don’t rise too high. Supply chain improvements can be a solution. From the upstream sector, the government ensures the availability of raw materials and production performance runs smoothly.

By looking at some of these reasons, the government is expected to carefully examine the increase in VAT, whether the policy is appropriate in the current situation.