The Government Raises Taxes, is it Right?

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Ministry of Finance (source: kemenkeu)

The government has imposed a Value Added Tax (VAT) of 11 percent starting April 1, 2022. This provision refers to Undang-Undang Nomor 7 Tahun 2021 concerning Harmonisasi Peraturan Perpajakan (HPP). The goods that are subject to VAT vary widely, ranging from electronic goods, telephone credit and internet bills, and motorbikes. car, etc. Of course, not all goods will be charged by the government, there are also some goods and services that are still provided with VAT-free facilities, namely necessities, health services, and so on.

Besides the increase in VAT rates, the Government through the Ministry of Finance is also preparing various technical regulations for the implementation of the carbon tax which is planned to be implemented starting July 1, 2022. Special Staff to the Minister of Finance for Fiscal and Macroeconomic Policy Formulation, Masyita Crystallin, said the policies that could be used to tackle the negative externalities of carbon emissions, namely through carbon pricing or the economic value of carbon, as a price/valuation for greenhouse gas emissions which will be implemented through the mechanism of cap and trade and cap and tax. These two mechanisms are briefly a government policy approach whose aim is to control the number of emissions from some sources or activities that produce carbon emissions.

Also recently, new rules regarding crypto taxes have started to be officially issued and come into effect from May 1, 2022. These rules will be imposed on income earned in terms of crypto-assets related to the sale of crypto assets, third parties who provide trading platforms through electronic systems, and crypto miners. The VAT charged for crypto-asset buyers is 0.11% and 0.1% for sellers.

The new policies above are some examples of contractionary fiscal policies currently being massively enforced by the government. The contractive fiscal policy itself is a policy of reducing government spending and increasing taxes which aims to prevent inflation and reduce the Gini ratio. This policy has received enough attention from the public because the public and the world are currently focusing on economic recovery.

The current contractionary fiscal policy will burden the public because the current situation has not fully recovered from before the pandemic. This can be seen in the percentage of poor people in September 2019 of 9.22%, which is 24.79 million people (BPS, 2019). Meanwhile, in September 2021 the percentage of poor people was 9.71%, which was 26.50 million people (BPS, 2021). On top of that, there are other aggravating factors such as the COVID-19 pandemic which has not yet entered its final stage, and also the Russo-Ukrainian war which will cause inflation in many commodity goods, such as oil, gas, coal, etc.

Moreover, the policy of increasing the VAT rate will also have a direct impact on inflation and is exacerbated by the implementation of policies that are approaching the month of Ramadan, which historically has always pushed up inflation. In the end, this policy will also affect people’s purchasing power. The increase in inflation that occurs can suppress people’s purchasing power and at a certain point will also have an impact on business actors due to the decline in people’s purchasing power. Even business actors are very likely to reduce their profits to maintain prices for the public.

This condition is in line with the opinion of Ajib Hamdani, Division of Accounting and Taxation Studies of the Association of Indonesian Issuers, that an increase in VAT of only 1% will still have a significant impact on people’s purchasing power. This can be illustrated by assuming the price of a piece of fried chicken before the VAT rate increase is Rp. 10,000, but with an increase in the VAT rate, the price of a piece of fried chicken will increase to Rp. 11,600. This is because production materials also increase due to the heavier VAT burden. Even without an increase in VAT rates, production prices will also increase due to the impact of rising commodity prices especially staple foods ahead of the month of Ramadan.

Even so, c. First, According to Sri Mulyani Indrawati, Minister of Finance of the Republic of Indonesia, Indonesia will experience a trade balance deficit of 3% this year. This happened because the state spending swelled, while the state income decreased. Second, covering the deficit in the previous year due to very large government spending in dealing with the COVID-19 pandemic. For instance, Bantuan Langsung Tunai (BLT) for underprivileged people, free Covid-19 vaccination, and so on. Tax policy also plays an important role in increasing even distribution. In addition to decreasing the income and wealth gap, the role of taxation has recently emphasized a focus on increasing intergenerational equality, and opportunity equality. in the end, tax policies that support equity can also contribute to economic growth and political stability.

This policy has also begun to be implemented by other countries. For example, Malaysia this year increased the corporate income tax rate for companies with income above 100 million ringgit per year, from 24% to 33%. Likewise, Singapore has planned to increase several tax rates including the goods and services tax which will be carried out in two stages, from 7% to 8% in January 2023 and 9% in January 2024. Singapore also plans to increase the income tax rate for the rich from 10–20 percent to 12–36 percent. When compared with Indonesia, the tax rate applied in Indonesia is still relatively low. Indonesia’s VAT rate itself is far below the global VAT average of 19 percent. However, the country with the average VAT rate certainly has a better system. This means that the calculation systems and methods of collecting taxes in these countries are already very good. Also recently, new rules regarding crypto taxes have started to be officially issued and come into effect from May 1, 2022.

Given these conditions, optimizing tax revenue seems to be the only way to maintain the health of the state budget because reducing spending is currently quite difficult to do. For this reason, the government needs to conduct an in-depth study of the impact caused by the increase in tax rates on small industries and the community, especially the lower middle class. On top of that, the government also needs to implement strategies that can increase public trust and awareness about taxes. This can be done by providing socialization about taxes, improving the quality of tax collection methods, or optimizing the use of tax revenues for the community. Likewise, as good citizens, we should also consciously contribute to the country through taxes.

Author (s) :

Richard Baggio Tan

Vela Fadhila Amijaya

Neysa Adelia N. A. P

Editor :

Neysa Adelia N. A. P

References:

Lidya Julita Sembiring. (2021). Malaysia Naikkan Pajak Perusahaan Jadi 33%, RI Lebih Murah. CNBC Indonesia

Aprilia Hariani. (2022). Singapura Naikkan Tarif GST dan Pajak Orang Kaya. Pajak.com

Yen Nee Lee. (2021). Malaysia stocks fall 2% as government announces ‘windfall’ tax on companies. CNBC.com

Kompas.com. (2022). PPN 11 Persen Diberlakukan Per 1 April 2022, Ini Daftar Barang dan Jasa Tak Kena Pajak

Yusuf Imam Santoso. (2021). Mengenal Lebih Dekat Pajak Karbon yang Bakal Diterapkan pada 1 April 2022. Kontan.co.id

Will Kenton. (2020). Cap and Trade. Investopedia

Kompas.com. (2022) Contoh Perhitungan Pajak Kripto, Ini Cara Hitung PPh dan PPN Aset Kripto.

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OECD. (2021). OECD Policy Responses to Coronavirus (COVID-19) Tax and fiscal policies after the COVID-19 crisis.