Heaptalk, Jakarta — Indonesia’s government has officially declared the implementation of tax rate increases in the Value Added Tax (VAT) rate to 12%, effective January 1, 2025.
“Under the mandate of the Law (UU) on Harmonization of Tax Regulations (HPP), the VAT rate is set to increase to 12% starting January 1, 2025. To support economic recovery, the government will introduce economic stimulus measures, particularly for low-income households, by covering 1% of the VAT, effectively reducing their payable rate to 11%,” Indonesia’s Coordinating Minister for Economic Affairs, Airlangga Hartarto, affirmed in an Economic Policy Package Press Conference. (12/16)
The 12% VAT rate will be fully applied to goods categorized as luxury items. The government is currently finalizing the list of luxury goods subject to this tax. Some of the luxury goods and services affected by the tax increase include premium rice, premium fruits, premium meat (such as Wagyu and Kobe beef), fish (such as premium salmon and tuna), premium shrimp and crustaceans, premium education services, premium medical health services, and household electricity consumption ranging from 3,500 to 6,600 VA.
Additionally, it was stated that essential goods subject to an 11% VAT rate include packaged Minyakita cooking oil, wheat flour, and industrial sugar, which is expected to maintain people’s purchasing power. Based on the Minister’s statement, Industrial sugar, which supports the food and beverage processing industry and accounts for a significant share of the manufacturing sector at 36.3%, will also remain subject to an 11% VAT rate.
Despite the VAT rate increase, the government has introduced several exemptions for specific goods and services that qualify for VAT relief. The detailed exemptions include:
- Essential goods, such as rice, unhulled rice, corn, sago, soybeans, salt, and meat
- Eggs, milk, fruits, vegetables, and consumer sugar
- Health services, education services, social services, insurance services, financial services, public transportation services, and labor services
- Vaccines, textbooks, and religious scriptures
- Clean water, including installation and fixed service charges
- Electricity, except for households with power consumption exceeding 6,600 VA
- Low-cost apartments, subsidized apartments, hospitals, and low-cost housing
- Construction services for places of worship and projects related to national disaster recovery
- Machinery, marine and fishery products, livestock, seeds/seedlings, animal feed, fish feed, feed ingredients, raw hides, and silver craft materials
- Crude oil, natural gas (including piped gas, LNG, and CNG), and geothermal energy
- Gold bars and granular gold
- Weapons/defense equipment and aerial photography tools
Strategic measures through incentive
The government will also provide food and rice subsidies of 10 kg per month for households in the first and second income deciles. To ease household expenses, those with electricity consumption of 2,200 Volt-Amperes or below will receive a 50% discount on electricity bills for two months. Additionally, policymakers will extend the 0.5% final income tax (PPh) for micro, small, and medium enterprises (MSMEs) until 2025.
“Given the State Budget (APBN) implications, we are working to balance equity, purchasing power, and economic growth in the final details of this policy. Alignment with economic growth targets remains a key design principle.” Indonesia’s Finance Minister, Sri Mulyani, conveyed.
