Jakarta. It is best for the government to focus on having a tax evasion crackdown rather than raising the value-added tax (VAT), according to an analyst.

The government has decided to proceed with its plans to raise the VAT from the current 11 percent to 12 percent starting next week despite public opposition. The government said that the new policy would only apply to “luxury goods”, and staple goods would not be subject to the VAT.

Yusuf Wibisono, the director at the think-tank Next Policy, said the VAT hike could add pressure on the weakening people’s purchasing power, particularly among the low and middle-income population. The government should have been able to increase its VAT revenue without the tariff increase. 

“The government needs to focus on tax crime crackdown rather than imposing higher [tax] tariffs on people. For instance, they should address those who under-report their sales turnover,” Yusuf recently said. 

Yusuf also considers the higher to be ironic amidst the government’s lower luxury tax revenue target. Indonesia aims to amass Rp 16.61 trillion (around $1 billion) in overall luxury tax for 2025, lower than Rp 27.26 trillion set for this year.

Indonesia last raised the VAT from 10 percent to 11 percent in 2022. VAT revenue contributed to 3.25 percent of the gross domestic product (GDP) in 2021. The figures rose to 3.51 percent in 2022, and went up to 3.62 percent of the GDP the following year. 

Income tax, however, remained stagnant. Data shows income tax-to-GDP ratio went up from 4.1 percent in 2021 to 5.1 percent in 2022. The ratio was stagnant at 5.03 percent in 2023, and is forecast to weaken to 4.7 percent of the GDP this year.

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