Muhammadiyah Requests The Cancellation Of The 12% VAT Policy

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Muhammadiyah Requests The Cancellation Of The 12% VAT Policy

Thursday, 21 Nov 2024

The Muhammadiyah Business Association (SUMU) believes that the increase in Value Added Tax (VAT), set to take effect in 2025, should be canceled as it will adversely affect micro, small, and medium enterprises (MSMEs).

According to the Secretary General of SUMU, Ghufron Mustaqim, speaking in Jakarta on Friday, many companies, particularly MSMEs, are currently struggling to survive amid declining consumer purchasing power, with numerous businesses reducing their workforce or facing bankruptcy.

"The proposed VAT increase fails to consider the current dynamics of the business environment and is counterproductive to the government's efforts to create jobs in light of rising unemployment rates," he stated. He referenced a report from the Indonesia Stock Exchange (IDX) regarding the LQ45 companies, noting that the net profit margin is only about 11 percent of revenue.

"This figure is not significantly different from the VAT rate that will be imposed," he remarked. Ghufron argued that a lower VAT rate would facilitate quicker sales transactions, as product prices could become more competitive, ultimately leading to the creation of more job opportunities.

He cautioned that the policy set to be implemented next year would make Indonesia the country with the highest VAT rate in ASEAN.

For comparison, Malaysia's VAT stands at six percent, while Singapore and Thailand impose rates of seven percent. The tax increase will further burden entrepreneurs, particularly those in the MSME sector.

"In Vietnam, Cambodia, and Laos, the VAT is set at 10 percent. Instead of increasing it, Indonesia should revert the VAT to 10 percent as it was previously, and gradually reduce it to between 6 and 7 percent to stimulate consumer spending," stated the Vice Chairman of the Muhammadiyah Central Leadership's MSME Development Institute.