Will Indonesia’s PPN Increase Solve All Problems or Just Create New Ones?
Indonesia has celebrated the dawn of 2025 with the gift no one asked for: a new PPN (VAT) rate of 12%. That’s an extra 1% slapped onto your nasi goreng, your kopi, and virtually every other staple of your daily existence. Why? Because clearly, disposable income is overrated when the government has bills to pay.
This maneuver catapults Indonesia into the elite club of nations that have tried raising VAT and mostly wished they hadn’t. From Greece’s fiscal drama to Japan’s post-hike consumer slump, history is littered with examples of how a small increase can trigger big headaches. Yet here we are, enthusiastically doubling down, as if this time the outcome will be different. Optimism is a beautiful thing.
So, are there really no better solutions than squeezing consumers and businesses during an already turbulent time? Is this the financial equivalent of fixing a leaky faucet by turning off the water forever? It just might be. Let’s admire the audacity of it all.
The Revenue-Generating Genius of a Whole Extra Percent
Taxing consumption is the fiscal equivalent of taking a bucket of water from a sinking ship and throwing it into the ocean, hoping the boat will float better. Indonesia’s 1% PPN increase is hailed as a genius move, destined to rake in billions for the government to spend on… something important. You know, roads, schools, or perhaps an exclusive line of government-endorsed tote bags. Details are forthcoming, we’re sure.
Countries love raising VAT in tough times, and history is rich with examples of how that works out.
What do these stories have in common? None solved their economic problems, and the results were "Ehh..."
This hike lands in an Indonesia already reeling from a shrinking middle class, wage stagnation, and rising living costs. The government’s banking on billions, but for the average Indonesian, the calculation is simpler: "Can I still afford my instant noodles?" And the answer is increasingly "only if I buy fewer."
Of course, this 1% hike raises both government revenue and questions. Like, is this really the best way to balance a budget? Or is it a lazy move that hurts the wrong people? As the government pats itself on the back for squeezing a little more from an already pressed populace, it’s conveniently ignoring a simple truth: you can’t squeeze blood from a stone, or disposable income from overburdened wallets.
What About Jobs? Oh, You Mean Those Things People Need?
Naturally, when you make things more expensive, people buy less of them. It’s the kind of economics you don’t need a degree to understand. Higher prices mean less spending, and less spending means businesses in retail, hospitality, and other consumer-driven industries start sweating. You know, the industries employing a sizable chunk of the population. But stable jobs are so overrated when you’ve got government revenue to toast.
Here’s the thing: it’s not just your local warung or the cheerful cashier at the Indomaret feeling the pinch. White-collar jobs are also in the splash zone. Businesses cutting costs to offset declining demand often start by trimming budgets for things like marketing campaigns, consultancy contracts, or that extra layer of middle management. Suddenly, your friendly office project manager isn’t managing anything except their LinkedIn profile. Innovation plans? Growth strategies? Nope, it’s all about survival mode now.
With businesses under pressure, annual raises are also disappearing fast, right up there alongside affordable rent. Meanwhile, the rise of gig and informal work offers a safety net that feels more like a fraying rope. Sure, you can pick up some extra cash delivering food or freelance graphic design, but good luck building a future.
The result? A workforce that’s financially stretched, emotionally drained, and one subscription fee away from complete collapse. But at least we’ve got that extra 1% revenue, right?
PPN: Now Featuring Inflation, Job Losses, and Your Favorite Discontent!
With the PPN hike to 12%, prices inch upward, wages stubbornly stay put, and the average Indonesian household is left wondering if budgeting apps now come with a “miracle” setting. Meanwhile, inflation sneaks in like an uninvited guest, feasting on everyone’s hard-earned rupiah and leaving nothing but a bitter aftertaste.
This is a well-documented reality.
Japan? Their post-hike consumer spending didn’t just dip; it nosedived into a crater so deep you could store everyone’s unsold inventory in it.
And yet, here comes Indonesia, enthusiastically adopting the same playbook as if copying mediocre homework will magically earn an A.
For small businesses, the PPN increase is a game of survival. Do they:
Raise prices and risk driving away customers already clutching their wallets in terror?
Absorb the cost and watch their margins evaporate?
Close shop, citing “taxation-induced crisis” on their farewell notes?
Whatever the choice, job cuts are often part of the equation. Nothing screams “economic progress” like fewer people working.
And let’s not forget those entrepreneurs who do raise prices just enough to alienate half their customer base. They’re rewarded with the impossible task of attracting new clients in an economy where even basic spending feels like a luxury. It’s a classic lose-lose scenario, except the government gets to win… briefly. For everyone else, it’s an ongoing lesson in fiscal irony: we’re fixing the economy by breaking it.
What’s the Real Alternative? (Because It’s Not This)
Instead of reaching for the trusty “squeeze the consumers” lever, why not try something… creative? Indonesia boasts one of the largest informal economies in the world. Picture the untapped revenue if small businesses, street vendors, and independent workers were gently nudged into the formal tax system. Not with scary audits or draconian penalties, but with incentives, and support.
And speaking of fairness, let’s talk about progressive income tax reforms. Ask the ultra-wealthy and mega-corporations to pitch in a bit more. Imagine a world where billionaires contribute more than their housekeepers in taxes. The average Indonesian could enjoy their mie goreng without worrying if their next packet will be a luxury item.
Don’t overlook sin taxes either. Fewer cigarettes and sugary drinks could mean healthier citizens and healthier revenue streams. It’s a two-for-one deal, and who doesn’t love those? Then there’s the glaring opportunity of property taxes for the ultra-rich, because if you own enough land to host a small nation, you can probably afford to pay a bit more for it.
Lastly, there's Government spending efficiency. A perennial favorite on the “things we know we need but never seem to do” list. Indonesia’s corruption and inefficiency are legendary. If we recovered even a sliver of the billions lost to mismanagement and redirected it toward infrastructure or public services, we might not even need this VAT hike.
So, why not explore these practical, proven strategies? Raising VAT feels less like solving the problem and more like hitting the snooze button on fiscal creativity. Wake up, policy-makers. There’s a whole toolbox you’re ignoring.
Raising PPN from 11% to 12% will patch the budget hole temporarily, but at what cost?
Jobs?
Consumer spending?
That precious sliver of optimism Indonesians had left about their economic future?
This move isn’t about bold economic reform. It’s about quick cash. The kind of quick cash that comes at the expense of struggling businesses, overburdened consumers, and a workforce already teetering on the edge of burnout. And while the government toasts its short-term revenue boost, the long-term fallout will likely feel more like a slow-motion stumble.
Indonesia has better options; solutions that don’t rely on taxing people’s morning kopi and leaving them to pick up the pieces. But instead of exploring those, we’ve opted to learn the hard way, clinging to a policy tool that history has repeatedly proven to be ineffective.