Jakarta. The Indonesian government is considering the implementation of a planned Value-Added Tax (VAT) increase to 12 percent, scheduled for January 2025, amid widespread criticism from businesses, workers, political parties, and economic experts. Amid concerns about the policy’s impact, social aid for the middle class is on the table as a potential measure to ease the burden.

Chief Human Development and Cultural Affairs Minister Muhaimin Iskandar, also known as Cak Imin, said on Monday that social assistance programs (bansos) are being discussed to support those affected by the hike. However, he emphasized that any aid must align with the state budget’s capacity.

"The policy is still being processed and discussed," Cak Imin said during a press briefing at the House of Representatives in Jakarta.

According to Cak Imin, social assistance will prioritize those most in need, but it could also extend to the middle class if necessary.

The proposed VAT hike has faced significant backlash over fears it will weaken consumer purchasing power and strain an already fragile economy. Critics argue that the increase will raise the cost of goods and services, creating ripple effects throughout the national economy.

Possible Delay in Implementation

Luhut Binsar Pandjaitan, Chairman of the National Economic Council, hinted at a potential delay in the VAT increase. He suggested that the government should provide economic stimulus to middle-income groups before enforcing the new tax rate.

"It’s almost certain the VAT hike will be postponed. Stimulus packages need to be delivered first to help people recover from economic pressures," Luhut said on November 27.

The Finance Ministry’s Directorate General of Taxation has indicated that revenue from the VAT increase will fund public welfare programs, including cash assistance, the Family Hope Program (PKH), and subsidies for electricity and fuel.

Senior economist Tauhid Ahmad from the Institute for Development of Economics and Finance (Indef) advised the government to delay the VAT hike until at least the second quarter of 2025. He urged policymakers to assess both global and domestic economic conditions before implementing the policy.

"If Indonesia’s economic growth fails to reach 5 percent in Q1 2025, delaying the VAT increase would be a wiser choice. Forcing its implementation could have negative consequences for subsequent quarters," Tauhid cautioned.

The government faces a critical month ahead to finalize its decision, with stakeholders closely watching how it balances fiscal priorities with public and economic concerns.

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