The Increase In The PPN Naik Plus Rupiah Has Placed Additional Pressure On The Lives Of Citizens In Indonesia, Making Their Circumstances Increasingly Challenging

TEMPO/Nabiila Azzahra A.

The Increase In The PPN Naik Plus Rupiah Has Placed Additional Pressure On The Lives Of Citizens In Indonesia, Making Their Circumstances Increasingly Challenging

Thursday, 26 Dec 2024

The increase in the Value Added Tax (VAT) from 11% to 12%, effective January 1, 2025, is anticipated to complicate the lives of Indonesian citizens, particularly those in the +62 demographic. This concern is exacerbated by the recent depreciation of the rupiah against the US dollar.

Shinta Kamdani, the Chairperson of Apindo, has indicated that the rise in VAT will diminish the purchasing power of the populace, as the cost of goods will escalate due to the increased transaction levy. Additionally, the weakening of the rupiah may lead to imported inflation, further straining consumers.

She noted that the decline in purchasing power has already been evident since mid-2024, as reflected in the consecutive deflation observed from May to September, alongside a significant reduction in the middle-class population, which fell from 57.33 million in 2019 to 47.85 million in 2024, according to BPS data.

"The Indonesian middle class has historically played a crucial role in boosting national consumption. The planned increase in VAT to 12% starting January 1, 2025, will exacerbate the challenges faced by the populace," she stated on Thursday, December 19, 2024.

Bambang Brodjonegoro, Special Economic Advisor to the President, cautioned the Prabowo Subianto administration against solely relying on inflation rates to assess the impact of the VAT increase on the economy. He emphasized that the minor inflation effects claimed by the government from the VAT hike cannot be generalized, as the potential inflationary impact varies across different economic groups.

"The fifth to eighth deciles, which were previously aspiring and near-poor, will certainly feel the burden. Therefore, it is essential to approach inflation analysis with caution. While the overall inflation may appear low, the effects of such inflation can differ significantly between high-income and low-income individuals," he remarked on Monday, December 23, 2024.