Government’s Official Decision to Raise Value Added Tax (VAT) to 12% in 2025 Sparks Public Controversy

 

Starting January 1, 2025, the Indonesian government will officially increase the Value Added Tax (VAT) to 12%. This decision, in accordance with Article 7, paragraph (1), letter b of the 2021 Tax Regulation Harmonization Law (UU HPP), is set to impact various sectors, with several goods and services being taxed at the new rate. These include premium rice, premium meats, premium fruits, premium education services, premium health services, and electricity consumers with a load of 3500–6600 VA.

The government’s decision to raise VAT has been met with various justifications. First, it aims to boost state revenue. Second, it seeks to reduce dependency on foreign debt. Third, it is aligned with international standards. However, this move has been met with significant public resistance, particularly from those whose economic situation is already strained. A petition calling for the government to cancel the VAT hike has gained traction, with over 145,000 signatures by Friday morning, December 20, 2024. The petition, launched by Bareng Warga, argues that the increase will only make life harder for citizens amidst the already uncertain economic climate.

Taxation in Indonesia has a long history, dating back to the classical period and the era of Hindu-Buddhist kingdoms. Inscriptions from this period mention taxes collected from the kingdoms. According to Djoko Dwiyanto in Pungutan Pajak dan Pembebasan Usaha di Jawa pada Abad IX-XV Masehi, several types of taxes were recorded in these ancient inscriptions, including land tax, trade tax, foreigner tax, and taxes on entry and exit from regions.

During the colonial period, taxes became an important source of income for the country. The Dutch East India Company (VOC) implemented various tax policies, including the contingenten, or land tax on agricultural products. Later, during British colonial rule, Thomas Stamford Raffles introduced land rent taxes, where the government claimed all land as state property.

The land tax system under Raffles, however, was not without challenges. According to Abdul Wahid in Dualisme Pajak di Jawa: Administrasi Pajak Tanah di Wilayah Vorstenlanden pada Masa Kolonial, the system faced administrative hurdles, such as unclear land data, making it difficult to assess tax amounts accurately. Moreover, local elites played a role in collecting taxes, complicating the process further.

Under Dutch colonial rule, the forced cultivation system or cultuurstelsel introduced by Johannes van den Bosch in 1829 required farmers to cultivate cash crops like coffee, sugar, and indigo for export. This system was a direct response to the financial difficulties of the Netherlands due to ongoing wars. Under this system, landless villagers were compelled to work on plantations for up to 75 days per year. The situation worsened when crop failures led to villagers bearing the losses, deepening their hardship.

In addition to the cultuurstelsel, other small taxes, such as those on markets, opium, salt, livestock slaughter, and pawn shops, were introduced. According to Rex Arendsen, these small taxes placed further burdens on the population, adding to the complexity of tax administration during the colonial era. From 1920 to 1935, the Dutch introduced income tax, corporate tax, and wage tax, leading to increased bureaucratic workload and making tax obligations even more difficult for the illiterate population to manage.

During the Japanese occupation (1942–1945), tax collection continued with the introduction of new taxes such as vehicle tax, animal tax (dogs), alcohol tax, land tax, income tax, and a special war tax imposed on Europeans and Asians in Indonesia. This system added to the mounting tax burden, contributing to further resentment from the population.

Throughout the colonial period, tax policies often led to resistance from the local population. One notable example is the 1908 rebellion in Kamang, West Sumatra, where local residents led by Haji Abdul Manan fought against the new taxes imposed by the Dutch East Indies government, which went against earlier promises made to the Minangkabau people. Similar uprisings occurred in Manggopoh, led by Siti Manggopoh, where the rebels succeeded in killing 55 Dutch soldiers.

These historical events, including the Kamang and Manggopoh rebellions, have been commemorated with monuments to preserve the memory of the resistance against colonial tax policies. The Tugu Perjuangan Rakyat Kamang 1908 and Tugu Manggopoh monuments, located in Agam Regency, stand as symbols of local defiance against colonial rule.

The decision to raise the VAT rate in Indonesia has sparked significant debate, reflecting the ongoing complexities of the nation’s tax system, which has evolved from its ancient roots to the colonial era and into the modern-day fiscal policies. While the government justifies the increase as necessary for boosting revenue and reducing foreign debt, the public’s response underscores the ongoing challenges in balancing economic policies with the welfare of ordinary citizens. As the nation moves into 2025, the impact of this decision will be closely monitored, especially in light of Indonesia’s long history of resistance to unfair taxation.