Jakarta. The government is considering revisiting its policy to increase the Value Added Tax (VAT) on luxury goods to 12 percent, which is set to take effect in January 2025. The decision comes in response to concerns over its potential impact on microeconomic sectors, said People’s Consultative Assembly (MPR) Chairman Ahmad Muzani on Monday.

“If the 12 percent VAT on luxury goods negatively affects the microeconomic sector, we will revisit this policy,” Muzani said during a press briefing at the Parliamentary Complex in Jakarta.

The tax hike is part of the Tax Regulation Harmonization Law (UU HPP), aimed at increasing state revenue. However, Muzani said the government has decided to apply the 12 percent VAT selectively, targeting only luxury goods to minimize the burden on the general public.

“The law mandates the increase, but the government is implementing it selectively to ensure it doesn’t harm the public’s purchasing power,” Muzani said.

To mitigate the policy's effects, the government is recalibrating economic stimulus packages. These measures aim to safeguard people’s purchasing power and address concerns surrounding the VAT increase.

“Economic stimulus designs are being recalculated and will soon be communicated to the public,” he added.

Economic analysts also weighed in on the policy. Permata Bank Chief Economist Josua Pardede described it as a strategic fiscal approach during Indonesia’s post-pandemic recovery. He highlighted the importance of targeted incentives to protect vulnerable groups while excluding essential goods and services—such as basic necessities, healthcare, and education—from the VAT increase.

The policy also introduces VAT exemptions for small businesses with annual revenues below Rp4.8 billion to bolster the growth of micro, small, and medium enterprises (MSMEs). Josua said selective implementation of VAT could help strengthen export-oriented industries and create new jobs.

Co-founder of Tumbuh Makna, Benny Sufami, called for careful monitoring of household purchasing power, particularly among middle- and lower-income groups, to ensure economic growth remains steady.

“While the policy has positive intentions, the first three months of implementation will be critical due to potential price surges. Government stimulus and financial literacy among citizens are vital during this transition,” Benny explained.

He urged the public to prepare for VAT optimization by improving financial literacy. Prioritizing essential spending, reducing nonessential expenses, and seeking additional income through skills training could help individuals adapt to the policy changes.

“People should strengthen their financial stability by focusing on important expenditures and finding ways to generate extra income, such as through skill development,” Benny advised.

Benny argues that the new VAT policy provides opportunities for investors to adapt their strategies. For risk-tolerant investors, current market conditions offer promising entry points into undervalued stocks, while conservative investors might consider retail bonds for stable returns.

"By adopting well-planned strategies, the public and businesses can navigate this period optimistically and even benefit in the long term," he concluded.