Jakarta. The Indonesian Shopping Center Management Association (APPBI) is urging the government to delay the planned increase in Value-Added Tax (VAT) to 12 percent on January 1, 2025, fearing it could lead to higher prices for goods and impact public purchasing power. The association warned that the move could hinder economic growth.

"This VAT increase will affect product prices, and naturally, this will impact the purchasing power of the public, especially the lower-middle class," APPBI Chairman Alphonzus Widjaja said during a press conference at ICE BSD in Tangerang on Friday.

Widjaja added that if the VAT increase proceeds as planned, it could slow down the economic growth target of 8% set by the government. He emphasized that Indonesia's economic growth is heavily reliant on household consumption, which accounts for more than 50% of the economy. "If consumption is disrupted, economic growth will also be affected," he explained.

Alphonzus cautioned that Indonesia's economic growth has not yet reached its full potential, and pushing through the VAT increase could place further pressure on the government's growth targets.

Economic policy analyst from the Indonesian Employers Association (Apindo), Ajib Hamdani, also suggested that the government delay the VAT hike. "The government can adjust the timing of the VAT implementation without changing the law," he said, referring to the previous delay of the carbon tax, which was initially set for April 2022 but postponed due to unfavorable conditions.

"From a business perspective, the timing of the VAT hike is not ideal. People's purchasing power is declining, and many from the middle class have moved down to the lower economic class," Hamdani said, citing data from the University of Indonesia's think tank LPEM, which shows that over 8.5 million people have fallen into a lower economic class between 2018 and 2023.

Hamdani stressed that improving public purchasing power should be a priority for the new administration of President Prabowo Subianto. "This should be a key focus, particularly during the first 100 days of the Prabowo-Gibran administration," he said.

Finance Minister Sri Mulyani Indrawati, however, reiterated that the government would proceed with the VAT increase to 12% starting January 1, 2025. She said that the policy was necessary to support the state budget and fiscal health, as well as to mitigate the impacts of the COVID-19 pandemic on key sectors.

Sri Mulyani emphasized that the tax policy, including the VAT increase, was designed with careful consideration for sensitive sectors like healthcare and essential goods. "The tax policy, including VAT, is not made arbitrarily. We are considering various sectors, such as healthcare and food," she said during a working meeting with Commission XI of the Indonesian House of Representatives on Thursday.

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