AN INCREASE in value added tax or (VAT) of up to 12% next year is expected to have a major impact on the lower middle class.
“The impact on consumption or the impact on increasing income In reality, each level of society or segment of society will be different. “It could be that the impact received by the lower middle class will be greater than the upper middle class,” said Researcher at the Center for Trade and Investment Industry of the Institute for Development of Economics and Finance (INDEF) Ahmad Heri Firdaus during the INDEF Public Discussion on Wednesday (20/ 3).
Furthermore, he said that the circular increase in VAT would increase costs such as production costs.
“So that later prices will increase, yes, prices will increase, consumers will have to pay more for the goods and services they will get,” he said.
On the other hand, he continued, when there was no increase income in a way that exceeds the increase in goods, it will make the purchasing power of the community lower.
“So the increase in production and consumption costs results in weakening purchasing power,” he said.
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If people’s purchasing power weakens, he continued, what will happen next is that production utilization in the retail sector will also decline.
“So it is feared that sales will decline, because people have weak purchasing power or yes, they need to save extra to allocate a certain amount of their budget with prices already increasing,” explained Heri.
And when it comes to the retail side which experiences a decline, of course this will cause the business world to adjust the use of its own production inputs.
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“The business world will adjust its use of production inputs, because if, for example, production is adjusted, sales, which were previously large, will become less. This will adjust the use of production inputs, one of which is labor,” he said.
Labor adjustments can be made by reducing working hours or even reducing the number of workers themselves.
“This will have an impact on income which of course will also adjust, so income will decrease. If income decreases, consumption will also decrease so it will hamper economic growth,” he explained.
On the other hand, if economic growth is corrected, the worry is that the increase in aggregate state income will not match expectations or may even experience a decline. (Z-10)
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