Airlangga Hartarto Highlights Economic Resilience Amid VAT Increase 

Maintaining Economic Balance Through Proper Fiscal Policy

On Monday, December 16, 2024, Airlangga Hartarto, Indonesia’s Coordinating Minister for Economic Affairs, also commented on the VAT rate increase to 12% that will take effect on January 1, 2025. In his statement, Airlangga emphasized the importance of maintaining economic resilience in Indonesia by balancing the government’s fiscal objectives with the needs of businesses and workers across the country.

While Airlangga acknowledged the necessity of increasing state revenue through this policy, he stressed that the VAT increase should not burden business growth or job creation. On the contrary, he called for measures that could mitigate the negative impact of the VAT increase on small and medium-sized enterprises (SMEs) and vulnerable sectors.

The government, according to Airlangga, is committed to providing economic stimulus to assist businesses in adapting to the VAT increase, enabling them to continue innovating, expanding, and protecting jobs, especially in labor-intensive sectors.

Impact of VAT Increase on the Economy

Based on simulations conducted by the Ministry of Finance, this VAT increase is expected to significantly affect several key economic indicators. Below are some of the expected impacts:

• Household Income: Household income will decrease from IDR 132.57 trillion (at 8% VAT rate) to IDR 64.81 trillion, a reduction of IDR 64.80 trillion. This decline is due to higher prices of goods and services caused by the VAT increase.
• Business Surplus: Business surplus is projected to decrease from IDR 84.23 trillion to IDR 41.41 trillion, a reduction of IDR 41.41 trillion. This indicates the impact of rising operational costs that could lead to decreased profitability for many businesses.
• Labor Income: Labor income is expected to decrease from IDR 48.33 trillion to IDR 23.40 trillion, a reduction of IDR 23.39 trillion. This may lead to slower wage growth or even job layoffs in some sectors.
• Labor Absorption: Labor absorption is predicted to drop by 554,440 people due to increased production costs and reduced demand for goods and services.

Airlangga emphasized that these figures highlight the importance of careful and balanced fiscal reform to minimize the negative impact on businesses and employment.

Reanda Bernardi’s Role in Supporting Businesses During This Transition

As the VAT rate increases, businesses need to take strategic steps to maintain their financial health and continue growing. Reanda Bernardi can help companies manage the risks that arise from this tax change.

Reanda Bernardi provides VAT impact analysis and financial modeling that offer a comprehensive view of how this VAT increase will affect businesses. The firm also offers consultation services to assist companies in implementing cost-efficiency measures, optimizing pricing models, and enhancing tax compliance. These strategic actions will help businesses adapt to the 12% VAT rate and minimize the negative impact on profitability and labor sustainability.

By providing strategic financial advice and tax planning, Reanda Bernardi helps businesses in Indonesia make the right decisions during this transition, ensuring they remain competitive in light of fiscal policy changes.

Full List of Details: Launch Economic Incentive Package, Government Ensures Justice and Public Interests Remain Protected

For more information, visit the official publication at: Launch Economic Incentive Package