The government’s plan to increase Value Added Tax (VAT) to 12 percent by 2025 amidst low wages of workers will only severely burden low income Indonesian people and laborers and push away the expected economic growth target of eight percent, says the Confederation of Indonesian Trade Unions (KSPI).
KSPI President Said Iqbal said the VAT increase will have a direct impact on the increasingly expensive prices of goods and services, while the minimum wage increase, which is anticipated to be around one to three percent, is not enough to cover the basic needs of the people.
“As a result, people’s purchasing power will decline, and the impact will spread to various economic sectors, which will hamper efforts to achieve the economic growth target of eight percent,” Said Iqbal in a statement made available to Indonesia Business Post on Tuesday, November 19, 2024.
“This sluggish purchasing power will also worsen market conditions, threaten business continuity, and increase the potential for layoffs in various sectors,” he added.
Said Iqbal, who is also President of Labor Party, said furher that this policy will not only weaken the people’s purchasing power, but also have the potential to increase social inequality.
“With an increased VAT burden, low income people will have to allocate more for taxes without adequate increase in income. Unequal income redistribution will further widen the gap between the rich and the poor, making the life burden of the low income people even heavier,” he noted.
In view of the current labor condition, KSPI asked the government to raise the minimum wage in 2025 by eight to 10 percent in an effort to increase people’s purchasing power, while setting the sectoral minimum wages in accordance with the needs of each sector
KSPI also asked the government to cancel its plan to increase the VAT to 12 percent and simultaneously increase the tax ratio not by burdening people of the low income group, but by expanding the number of taxpayers and increasing tax collection on large corporations and wealthy individuals.
Said Iqbal said that KSPI together with other labor unions will hold a national strike throughout Indonesia if the government continues to increase the VAT to 12 percent as planned and does not raise the minimum wage as demanded.
