Former Director General of Taxation Urges Government to Cancel Increase in VAT Tariff to 12%
In a recent statement, former Director General of Taxation, Hadi Poernomo, has called on the government not only to postpone but to cancel the planned increase in the Value Added Tax (VAT) tariff to 12%. He has proposed that the VAT rate should revert back to 10%.
Criticism has arisen over the scheduled increase to 12% on January 1, 2025, as stipulated in Article 7, paragraph (1) of the VAT Law. Hadi suggests that the government could issue a Government Regulation in Lieu of Law (Perppu) to revoke the 12% VAT rate mandated by the VAT Law.
Hadi emphasized that there is still a month left before the 12% VAT rate comes into effect on January 1, 2025, providing an opportunity for the government to repeal the regulation through the issuance of a Perppu, which only requires approval from President Prabowo Subianto.
Implementation of a Monitoring System for Self-Assessment
Hadi also proposed the implementation of a monitoring system for self-assessment, where all financial and non-financial transactions of taxpayers are required to be reported comprehensively and transparently. This system aims to ensure that tax reporting reflects the actual economic conditions, minimize tax revenue leakage, enhance public trust, and optimize state revenue without raising tax rates.
The monitoring system for self-assessment is designed to collect data from various sources and consolidate it through a link and match concept, allowing the government to verify taxpayer reports and comprehensively map state revenues, including legal and illegal income.
By enforcing strict monitoring, the VAT rate could be reduced back to 10% without compromising state revenue. Hadi stressed that with effective supervision, the VAT rate could be decreased without reducing state revenue, ensuring economic growth and increased purchasing power for the public.
Impact on Society and the Economy
Hadi highlighted the burden the VAT increase would place on low-income individuals, as data from the Central Statistics Agency (BPS) shows that more than 50 million Indonesian workers have limited purchasing power due to low education levels. The VAT hike could further strain their finances, reduce purchasing power, and exacerbate social-economic disparities.
Moreover, the dependence on VAT, which accounts for 43.2% of total tax revenue according to the 2025 State Budget Draft, raises concerns. Hadi emphasized the importance of tax policies that protect the purchasing power of the lower-income population and promote economic equality.
Inconsistencies in tax regulations were also addressed as a major obstacle to effective tax oversight, leading to the imposition of regulations that do not align with legal principles or impose irrelevant value restrictions. Hadi proposed aligning existing regulations to enhance consistency and integration.
Furthermore, the development and strengthening of monitoring tools to enable tax authorities to verify taxpayer reports were highlighted as essential to ensuring effective and accountable self-assessment. Hadi emphasized the importance of fairness in tax administration and the need for tax officials to act with integrity.
By implementing a monitoring system for self-assessment, the transparency achieved can expand the tax base more accurately, providing an opportunity to reduce tax rates without compromising state revenue. This approach would support a significant increase in the tax-to-GDP ratio.
In conclusion, Hadi emphasized that lowering the VAT rate to 10% is achievable through comprehensive reforms that focus on improving tax compliance, ensuring oversight systems that promote fairness, transparency, and efficiency. It is not about raising tax rates but about enhancing compliance, ensuring robust oversight, and fostering economic growth.
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