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The Indonesian government has modified its plans to raise the VAT rate from 11% to 12%, Bloomberg reported. The revised policy now targets only luxury goods, leaving rates on other items unchanged.

The decision was in response to mounting criticism, specifically regarding the impact a 1% VAT hike has on consumption and manufacturing activity, both already languishing beneath high inflationary pressures. Critics also highlighted concerns about the impact of increased taxation on gross domestic product growth, arguing that it would dampen the country’s ability to meet the government’s 8% target in 2025.

For the polyolefins industry, the development may signal a potential reprieve, as uncertainty surrounding the VAT hike had kept buying behaviour cautious for several weeks. Although speculation had already suggested non-luxury items might remain unaffected, market participants have now received clearer direction.

“With greater certainty that household consumption may not be significantly impacted by the tax hike, demand could see improvement, potentially boosting the raw material purchases,” one market participant remarked.

Converters in the HPDE sector were among the hopeful, given initial reports that, in December, finished-product orders had fallen by 15% since the previous month. 

Still, market participants remain wary, recognising that significant challenges persist. Lingering obstacles to increased trading activity include a depreciating Rupiah, comfortable converter inventories and ongoing anti-dumping investigations.

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Written by: Derek Yong Zher

Country
Indonesia