Chair of the Indonesian Retail Entrepreneurs Association (Aprindo), Solihin, anticipates a shift in consumer spending patterns once the 12 percent value-added tax (VAT) rate is implemented next year, according to reporting from Tempo.
Although basic necessities are exempt from VAT according to Law Number 7 of 2021 concerning Tax Regulation Harmonization, other goods, such as electronics and fashion items, will become more expensive. This price increase may prompt consumers to reevaluate their brand loyalty and purchasing behavior.
Solihin assessed that Indonesian consumers are brand-loyal, but they are also price-sensitive. “Because of the significant price increase, they may explore alternative brands or adjust their consumption habits,” he told Tempo on Monday (18/11/24.)
Solihin said that Aprindo is currently assessing the potential impact of the VAT rate increase and formulating strategies to mitigate the effects on purchasing power. The association plans to submit recommendations to the government after observing the real-world impact of the new VAT rate.
According to the Finance Ministry’s website, the VAT Law employs a “negative list” approach, meaning that all goods are subject to VAT unless specifically exempted. Taxable goods include electronics, clothing, land and buildings, furniture, processed foods, and motor vehicles.
Finance Minister’s Regulation (PMK) Number 71/PMK.03/2022 specifies that services such as package delivery, travel services, religious travel services, voucher provision, and domestic airline tickets are subject to VAT, reports Tempo, adding that exemptions from VAT apply to basic necessities, food served in restaurants, money and gold bullion, crude oil, raw minerals, health services, social services, finance, insurance, religious education, arts, labor, hospitality, money transfers, and catering services.
Source: Tempo
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