Heaptalk, Jakarta — The planned 12% VAT, set to take effect in January 2025, reportedly has room for adjustments.
According to Dolfie Othniel Fredric Palit, Deputy Chairperson of Commission XI of the Indonesian House of Representatives (DPR RI), who spoke to the media on Tuesday (11/26), although the increase in VAT to 12% by January 2025 is mandated by the Harmonization of Tax Regulations Law (UU HPP), President Prabowo has the authority to delay the rate hike amid sluggish economic activity.
He could even lower the rate to as low as 5%. “This provision is stated in Article 7, Paragraph (3) of the UU HPP,” Dolfie explained.
The regulation in Paragraph (3) of Article 7 allows the VAT rate to range between a minimum of 5% and a maximum of 15%. Changes to postpone or lower the rate can be made simply through a Government Regulation (PP) and require approval from the DPR without issuing a government regulation in lieu of law (Perpu).
“The cancellation of the VAT rate hike can rely on Article 7, Paragraphs 3 and 4 of the UU HPP. So, there’s no need to issue a Perpu,” said Fajry Akbar, a tax analyst and Head of Research at the Center for Indonesia Taxation Analysis (CITA).
Here is the full regulation under Article 7 of the Harmonization of Tax Regulations Law that enables the government to delay or even lower the VAT rate:
- The Value-Added Tax rate is:
a. 11%, effective from April 1, 2022.
b. 12%, effective no later than January 1, 2025. - A 0% VAT rate applies to:
a. exports of taxable tangible goods.
b. exports of taxable intangible goods.
c. exports of taxable services. - The VAT rate referred to in paragraph (1) may be adjusted to a minimum of 5% and a maximum of 15%.
- Changes to the VAT rate, as referred to in paragraph (3), are regulated through a Government Regulation after being submitted by the Government to the DPR for discussion and approval as part of the state budget planning process.
