Indonesian Industrial Estates Propose VAT Reduction to Boost Economic Recovery

Gradual VAT Cut to 8% Proposed by Industry Association

The Indonesian Industrial Estate Association (HKI) has formally proposed a gradual reduction in Value Added Tax (VAT) from the current 11% rate to 8% by 2028. This proposal aims to support the country's economic recovery, particularly in the industrial sector which has been affected by recent tax adjustments. HKI Chairman Akhmad Ma'ruf Maulana emphasized that the current VAT rate is having a negative impact on market dynamics.

Economic Rationale Behind the Proposal

Ma'ruf explained that the high VAT rate is contributing to decreased consumer spending and delayed business expansions. The industrial sector is particularly affected as higher operating costs are impacting both production and investment plans. "We've seen sales decline and expansion plans postponed across multiple sectors. While it's not the sole factor, the high VAT rate is certainly adding pressure on the market. A gradual reduction would help restore consumer confidence and stimulate production," Ma'ruf stated.

Potential Impact on Industrial Sector

The proposed gradual reduction is designed to give businesses time to adjust while maintaining government revenue streams. The industrial estate management companies believe that lowering the VAT rate will lead to increased consumption and potentially more robust economic growth. This move is seen as particularly important for maintaining Indonesia's competitiveness in the global manufacturing landscape.

Implementation Considerations

While the proposal suggests a gradual reduction to 8% by 2028, it doesn't specify the exact timeline for the rate cuts. The industry association is expected to engage in further discussions with government officials to determine the most appropriate implementation schedule that balances economic stimulus with fiscal considerations.