Chairman of the National Economic Council (DEN) Luhut Binsar Pandjaitan has indicated that the planned increase in Value-Added Tax (VAT) to 12% on January 1, 2025, will likely be postponed.  

 

“Yes, it’s almost certain to be postponed,” Luhut said in Jakarta on Wednesday, November 27, as quoted by Katadata. 

 

This postponement comes as the government plans to provide stimulus or incentives to the public first through social assistance for the middle class.  

 

“Before the 12% VAT is implemented, we need to first give stimulus to those struggling economically,” he explained. 

 

The social assistance is intended to act as a cushion to mitigate the impact of the 12% VAT. The plan is to distribute the aid not as direct cash assistance but as energy subsidies for electricity. 

 

“But this will be allocated to electricity. If it’s given as direct cash aid (BLT), there’s concern it could be misused for gambling again,” he remarked. 

 

When asked about the definitive timeline for the 12% VAT implementation in 2025, Luhut said it would depend on the outcome of upcoming government meetings. “We don’t know yet. There are still some meetings to go,” he stated. 

 

Social Assistance Budget Already Allocated 

 

Luhut mentioned that the budget for the social assistance has already been allocated in the State Budget (APBN). The government is also finalizing the mechanism for distributing the aid. 

 

Regarding the wave of criticism over the 12% VAT increase on social media, Luhut attributed it to the public’s lack of understanding about the structure of the increase. “It’s because people don’t understand the structure yet,” he said. 

 

Previously, Finance Minister Sri Mulyani Indrawati stated that the plan to increase VAT to 12% on January 1, 2025, is mandated by law. 

 

During a working meeting with Commission XI of the House of Representatives (DPR), Sri Mulyani explained that the tax policy was developed considering conditions across various sectors. 

 

The tax proposal is outlined in the Harmonization of Tax Regulations Law (HPP) drafted in 2021. At the time, the government considered public health and basic needs affected by the Covid-19 pandemic. 

 

12% VAT Still Under Comprehensive Review 

 

Jodi Mahardi, spokesperson for the DEN chairman, said the VAT rate adjustment policy is undergoing a comprehensive review that considers national and global economic conditions. 

 

“Referring to Mr. Luhut’s statement earlier, we’d like to emphasize that this policy is still under in-depth study,” Jodi said in Jakarta on Wednesday, November 27. 

 

He noted that Indonesia and the world are still facing challenges affecting the domestic economy, such as the election of Donald Trump as President of the United States, the economic slowdown in China, and the weakened purchasing power of the lower middle class. 

 

With these economic risks and challenges, the government aims to maintain inclusive and sustainable economic growth. 

 

“Therefore, various economic policies, including those related to VAT, are being reviewed comprehensively to ensure sustainability aligned with national and global economic conditions,” he said. 

Original article here
This article is published in partnership with Katadata