JAKARTA – Minister of Finance Sri Mulyani announced an increase in Value Added Tax (VAT) from 11 percent to 12 percent starting January 2025. Warganet also called for a government boycott by stopping spending on non-essential needs as a form of protest.
Minister of Finance Sri Mulyani said this decision had been considered in order to boost state revenues to make it more optimal and the economy more stable. The increase in VAT is in line with Law Number 7 of 2021 concerning Harmonization of Tax Regulations (HPP). In that regulation, it is stipulated that VAT will increase to 11 percent starting in 2022 and to 12 percent starting in 2025.
But this decision makes people worried. In the midst of a difficult economy, the increase in VAT to 12 percent is predicted to burden the community, especially the middle class. In addition, retail entrepreneurs are also worried that this policy will affect the circulation of money.
Citing the website of the Ministry of Finance, VAT is a type of tax imposed on every sale and purchase transaction of goods or services carried out by Taxable Entrepreneurs (PKP). Although the tax burden is directly borne by the final consumer, the obligation to collect, deposit, and report VAT remains on the shoulders of PKP.
In the VAT system, entrepreneurs who have been confirmed as PKP have the obligation to collect VAT from consumers, deposit it to the state, and report the amount of VAT that has been collected.
Simply put, starting next year, people will have to pay a tax of 12 percent of the products or services purchased. Examples of items worn include bags, clothing, shoes, automotive products, electronic devices, telecommunication pulses, tools, as well as beauty and cosmetic products. In addition, music and film streaming services, such as Spotify and Netflix, are also included in the category of services imposed by VAT.
VAT, which rose to 12 percent, made entrepreneurs worry that it would trigger a surge in goods and even reduce people’s purchasing power, especially the lower middle class.
From the consumer side, they responded to the increase in VAT to 12 percent in various ways. However, what has been widely discussed on social media lately is the call to boycott the government. How, by implementing frugal living aka a saving lifestyle as a form of protest. In other words, people are invited to slow down the turnover by not buying products in retail.
“Those who want to change cellphones are holding back, those who want to change motorbikes are just holding back, those who want to change cars are just holding back. Just 1 year, don’t forget to use all the subsidies, don’t let your prestige be called poor, that’s from our money too. When will the government boycott itself,” wrote an account on X.
Meanwhile, other accounts call for frugal living, aka frugal save. “The government boycotts the structural frugal living path. Save with expenses, buy at neighboring stalls/markets near home, make a list of taxable items that you can look for alternatives, minimize consumption.”
Bhima Yudhistira, Executive Director of the Center of Economic and Law Studies, also observed the calls for boycotts echoed by netizens on social media. He assessed that the community, especially the lower middle class, had no choice but to tighten their belts amidst the increase in VAT which resulted in an increase in the price of goods.
Thus, the decision to implement fake living cannot be avoided, but according to him the government will feel the domino effect of this boycott.
This phenomenon will harm the government, because the increase in VAT rates to 12 percent will weaken household consumption. People only have a choice: saving or if they have to buy their goods, they will substitutionally choose cheaper goods,” said Bhima when contacted by VOI.
What is worse, said Bhima, is that people will look for goods at low prices, even illegal in order to avoid an increase in VAT. As a result, it is not impossible that the circulation of illegal goods in the country will proliferate. He said the higher the tax applied to goods would trigger the circulation of illegal goods in the country.
“It is feared that imports of illegal goods will become heavier, meaning that there is a potential for lost taxes,” he said.
Although it aims as a form of protest, the call to hold back spending is arguably not entirely appropriate. According to data from the Central Statistics Agency (BPS) 2023, domestic consumption figures are still the main motor driving the domestic economy. The contribution even reached 52.42 percent.
This means that the spending issued by the community is still the main driver of the national economy. By holding back spending, it is tantamount to holding back income for others. This is because the consumption issued should be an income on the recipient side.
Well, if demand weakens, the company will automatically reduce supply supply. And, to reduce costs so as not to lose, producers can lay off their layoffs to reduce the workload. In the end, the people who are harmed are themselves.
Chairman of the Indonesian Shopping Center Retailers and Tenants Association (Hippindo) Budihardjo Iduansjah said this increase has the potential to affect people’s spending behavior, and can even significantly reduce purchasing power. He himself has heard rumors related to the government’s boycott call and this is detrimental to the economy.
“If everyone holds back spending, the wheels of the economy stop. The money should be turned around so that all parties enjoy it,” he said
This is also a concern for Bhima Yudhistira when calls for shopping at small stalls burst. He did not deny that public consumption almost certainly changed because the increase in income was not comparable to the increase in the price of goods.
But unfortunate, shopping at small stalls or in other words reducing spending other than basic needs will actually harm modern retail companies.
They actually eroded their share market when some people moved to stalls. Even though modern retailers are one of the absorbers of labor in the retail trade sector, which is quite large,” he concluded.
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