Jakarta. The government should reconsider the plan to implement a hike in value-added tax next year because Indonesia currently has the highest VAT in Southeast Asia, the chairman of the Indonesian Global Brand Retailers' Association (Apregindo) said on Monday.

Indonesia will impose a 12 percent VAT on January 1, an increase of 1 percentage point from the current rate.

Apregindo Chairman Handaka Santosa said the hike will be a major setback to the ongoing post-pandemic recovery initiatives and hurt the already weakened people's purchasing power.

Even with the current VAT rate of 11 percent, Indonesia already holds the regional record for the highest VAT, Handaka said in an interview with IDTV business channel.

“The VAT is set at 9 percent in Singapore and 7 percent in Thailand. Indonesia already has the highest VAT in the region, above Vietnam's 10 percent. So, we are concerned about another hike,” Handaka said.

In theory, the VAT hike is the government's shortcut to boost revenue in the state budget. However, the rise will add inflationary pressure to the economy, hurt the purchasing power, and eventually put a brake on the economic growth, he said.

Moreover, the hike will reduce the size of Indonesia's middle-class population, which already fell by 17 percent in the past year, Handaka explained.

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