Jakarta. Economist Achmad Nur Hidayat recently said that the government should clearly state what sort of “luxury goods” would be subject to the upcoming value-added tax (VAT) hike. 

Indonesia has decided to proceed with its plans to raise the VAT from the current 11 percent to 12 percent starting in January. President Prabowo Subianto said that the new policy would only apply to luxury goods, although he did not mention the types of products that the government would consider to be luxury. 

According to Achmad Nur, “luxury goods” in tax terms can range from premium vehicles, jewelry, expensive electronics to property assets of a certain value. But the starting price of luxury goods often do not align with the Indonesian lower middle class’ purchasing power.

Inflation can also cause changes in the definition of luxury goods. This can even prompt products that were originally meant for secondary needs to be classified as luxury goods and thus taxed at a higher rate. 

“So mid-upper range smartphones, which people often use for work or school, might even be subject to the VAT hike,” Achmad Nur said over the weekend. 

The analyst even warned that the absence of a clear definition could make the lower middle class even more vulnerable once the higher tax rate comes into effect.