Legal Literacy- The increase in Value Added Tax (VAT) from 11% to 12% will take effect from January 1, 2025. How does this policy affect people's purchasing power, MSMEs, and the national economy? Check out the complete review along with strategic recommendations to deal with it.

Government Plans to Increase Tax Rates

The government will increase the Value Added Tax (VAT) rate from 11% to 12% starting January 1, 2025. This policy is in accordance with Article 7 paragraph (1) of Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP). The increase in tariffs is said to only apply to goods and services that fall into the luxury or premium category. This step was taken to adjust tax regulations to national economic needs. The government is trying to maintain people's purchasing power with various policies. One of them is rice assistance for people in need. In addition, there are also income tax incentives for labor-intensive industries and a 50% discount on electricity bills for customers with power below 2200 VA for two months. This policy is aimed at helping households, workers, MSMEs, labor-intensive industries, the property sector, electric and hybrid cars. Not a few believe that the application of multi-tariffs has the potential to cause confusion for business actors. For example, if a retail store sells luxury goods and ordinary goods at the same time, the seller must calculate different rates for each category. This process can complicate tax administration, because each category of goods requires separate calculations. This also increases the possibility of errors in calculating the taxes to be paid. The VAT increase is considered inappropriate because the people's economy has not fully recovered. This condition is increasingly burdensome, especially for the middle and lower classes who are already facing pressure from inflation and rising prices of basic necessities. This policy raises a big question: what is the impact on the people's economy? It is important to understand the implications thoroughly and formulate fairer steps.