Indonesia’s VAT Hike: Workers Warn of Strike Amid Economic Strain
The president of the Indonesian Trade Union Confederation (KSPI), Said Iqbal, warned that raising the value-added tax (VAT) to 12 percent will harm workers and small communities. He stated that a minimum wage increase of only 1-3 percent is insufficient to meet people’s basic needs. This situation will reduce purchasing power and negatively affect various economic sectors.
In response to the VAT increase, KSPI and the Labor Party suggested four actions for the government. First, they urged raising the minimum wage by 8-10 percent in 2025 to boost purchasing power. Secondly, they recommended establishing sectoral minimum wages based on the needs of each sector. The third request is to cancel the VAT increase, and the fourth is to increase the tax ratio without hurting small populations. Instead, they propose expanding the taxpayer base and enhancing tax collection from large corporations and wealthy individuals.
If the government goes ahead with the VAT hike and does not raise the minimum wage, KSPI and other labor unions plan a national strike involving 5 million workers in Indonesia. This strike will halt production activities for at least two days, set to occur before December 24.
How is the Indonesian Trade Union Confederation addressing workers’ concerns about rising living costs?
Interview with Said Iqbal, President of the Indonesian Trade Union Confederation (KSPI)
Interviewer: Thank you for joining us, Mr. Iqbal. The proposed increase in the Value-Added Tax (VAT) to 12 percent has sparked significant concern among workers and small communities. Can you elaborate on how this tax hike will specifically impact them?
Said Iqbal: Thank you for having me. The increase in VAT is a step that we believe will severely burden workers and low-income communities. Higher VAT translates to increased prices for essential goods and services, directly affecting the purchasing power of families, many of whom are already struggling. With a minimum wage increase of only 1-3 percent, workers won’t be able to meet basic needs such as food, housing, and education.
Interviewer: You’ve proposed several actions for the government in response to this situation. Could you detail what KSPI is urging the government to do?
Said Iqbal: Absolutely. We have four key requests. Firstly, we are advocating for a minimum wage increase of 8-10 percent in 2025 to truly enhance purchasing power. Secondly, we recommend establishing sectoral minimum wages that reflect the specific needs of each sector, ensuring fairness across the board. Thirdly, we believe the VAT increase should be canceled, as it disproportionately affects those with lower incomes. Lastly, we suggest enhancing the tax ratio without placing additional burdens on small populations by expanding the taxpayer base and improving tax collection from large corporations and wealthy individuals.
Interviewer: What actions will KSPI take if the government proceeds with the VAT increase and does not implement your recommendations?
Said Iqbal: If our concerns are ignored and the VAT increase goes ahead without raising the minimum wage, we have no choice but to mobilize. We are prepared to initiate a national strike involving 5 million workers, which will halt production activities for at least two days, scheduled before December 24. This strike is a last resort to express our discontent with the government’s policies that jeopardize workers’ livelihoods.
Interviewer: You mentioned that the VAT increase could undermine the government’s economic growth objectives. Can you explain how?
Said Iqbal: Certainly. The government’s goal of achieving 8 percent economic growth could be hampered by reduced purchasing power among the populace. If workers cannot afford basic necessities, consumer spending will decline, leading to decreased market activity and potentially harming businesses. This creates a vicious cycle that not only threatens economic growth but also worsens market conditions.
Interviewer: Can you speak to the broader social implications of the VAT increase?
Said Iqbal: Yes, the implications are concerning. Increasing VAT could exacerbate social disparities, placing a heavier tax burden on those with low or stagnant incomes while failing to adequately tax those who can afford it. This can deepen the gap between rich and poor and further entrench inequality in our society. We must strive for a tax system that promotes fairness and addresses income distribution effectively.
Interviewer: Thank you for sharing your insights, Mr. Iqbal. Your perspective sheds light on a crucial issue that affects workers throughout Indonesia.
Said Iqbal: Thank you for having me. It is essential to keep these conversations active as we work toward a fair economic environment for all.
Said Iqbal highlighted that the VAT increase could hinder the government’s goal of achieving 8 percent economic growth. He emphasized that weakened purchasing power would worsen market conditions and threaten business sustainability. Additionally, he warned that this policy could increase social disparities, with a heavier tax burden on those with low or stagnant incomes. He concluded that unequal income distribution could widen the gap between the rich and the poor.