Jakarta – Former Director General of Taxes, Hadi Poernomo, urged the government not just to delay but to cancel the increase in the Value-Added Tax (VAT) rate to 12%. He proposed that the VAT rate be brought back down to 10%.
He stated that the VAT rate increase to 12%, set to take effect on January 1, 2025, as stipulated in Article 7, paragraph (1) of the HPP Law, has drawn criticism. According to Hadi, the government could issue a Government Regulation in Lieu of Law (Perppu) to cancel the 12% VAT rate in the HPP Law.
“The issuance of a Perppu can be done to prevent the VAT rate increase because this has already been regulated in the HPP Law,” Hadi, who also served as Chairman of the Audit Board of Indonesia (BPK) from 2009 to 2014, said in a written statement on Monday (December 2, 2024).
He also added that under the HPP Law, the 12% VAT rate is set to take effect starting January 1, 2025, meaning there is still one month left to cancel this regulation.
“There is still enough time for the government to issue a Perppu, which only requires the approval of President Prabowo Subianto,” Hadi explained.
Corruption and Tax Evasion Share Similar Characteristics
Hadi emphasized that both corruption and tax evasion share the same characteristic: they arise due to opportunities. The self-assessment principle, which relies on the honesty of taxpayers, has the potential to lead to incorrect and unclear tax reporting.
In the self-assessment system, taxpayers are given the right to calculate their own taxes, pay the taxes due, and report them through the Annual Tax Return (SPT) submitted to the tax authorities.
Hadi proposed a self-assessment monitoring system, where all financial and non-financial transactions of taxpayers must be reported fully and transparently. In this way, taxes would not only be the main source of state revenue but also a very strategic tool to fight corruption and settle the country’s debt.
It is known that the self-assessment monitoring system is designed to collect data from various sources, which will then be integrated with a link-and-match-based concept, allowing the state to test the SPT of taxpayers and enabling a comprehensive mapping of state revenue, including both legal and illegal income.
This system can ensure that every tax report reflects the actual economic situation, minimize tax revenue leakage, increase public trust, and optimize state revenue without raising the tax rate. “With this monitoring, the VAT rate can return to 10% without reducing state revenue,” Hadi stressed.
VAT Burdens the Public
Hadi mentioned that according to data from BPS (Central Statistics Agency), more than 50 million of Indonesia’s workforce have low education and limited purchasing power. The increase in the VAT rate would add to their burden, reduce their purchasing power, and worsen socio-economic inequality.
According to the 2025 state budget (RAPBN) data, the heavy reliance on VAT, which contributes 43.2% of total tax revenue, is also a concern. He emphasized that tax policies should protect the purchasing power of the lower-income population and promote economic equality.
“Relying on VAT as the main source of income will only burden the lower-income people, whose majority of income is spent on consumption,” said Hadi.
Hadi also pointed out the inconsistency in regulations as a major obstacle to effective tax supervision. This results in rules that are inconsistent with legal principles or impose irrelevant value limits.
He suggested that the main focus in improving the tax system should be on aligning existing regulations to make them more consistent and integrated.
Strengthening Monitoring Tools
Additionally, it is important to develop and strengthen monitoring tools that allow tax authorities to verify reports submitted by taxpayers, ensuring that the self-assessment principle can be implemented more effectively and accountably.
“If this system is applied, tax justice will be realized. Tax officers will not be able to act arbitrarily. This is key to creating tax fairness,” said Hadi.
With the self-assessment monitoring system, the transparency generated will allow for a more accurate tax base expansion. This opens up the opportunity to reduce tax rates without decreasing state revenue, as the broader tax base will still support a significant increase in the tax ratio.
Thus, if all improvements are made, the VAT rate could be lowered back to 10%, increasing the public’s purchasing power without reducing state revenue. A lower VAT rate would also create economic space to boost consumer spending.
“It’s not about increasing the rate that’s the solution. The key is for the taxpayer’s SPT to be auditable, increasing compliance, and ensuring a monitoring system that creates fairness, transparency, and efficiency,” he concluded.
