IMPLEMENTATION OF VALUE ADDED TAX RATES ACCORDING TO LAW NO. 7 OF 2021 AND ITS IMPACT ON MICRO, SMALL, AND MEDIUM ENTERPRISES TAXPAYERS

Abstract

Value Added Tax (VAT) is a tax that is levied on the supply of goods and services that are subject to taxation.  As of April 1, 2022, the government has officially increased the value-added tax (VAT) rate from 10% to 11%. This change was mandated by Law No. 7 of 2021, which concerns the harmonization of tax regulations.  This study aims to examine the implementation of the 11% VAT rate, which is believed to have resulted in increased selling prices and a reduction in purchasing power following the enactment of Law No. 7 of 2021. Additionally, it seeks to identify the challenges encountered during the implementation process.  This research employs a descriptive quantitative methodology, utilizing a range of data collection techniques, including questionnaires, interviews, observation, and documentation.  The findings of the study indicate that the rise in the VAT rate to 11% has resulted in an increase in selling prices.  However, when the selling price is considered the basis for imposing the tax, some taxpayers still determine the same price.  The increase in the price of daily necessities has resulted in a slight decline in purchasing power.  The rise in economic prices was precipitated by the hike in the 11% VAT rate, compelling consumers to allocate a greater proportion of their income towards meeting their basic needs.  The 11% VAT increase has presented numerous challenges for micro, small, and medium enterprises, with concerns that it may exacerbate economic difficulties.  In order to offset the decline in consumer purchasing power, it is necessary to maintain the same price as before, while only the VAT rate has increased for a limited period of time.