The Value Added Tax (VAT) rate in Indonesia will increase from the current 11% to 12%, effective January 1, 2025. This policy is part of the government’s strategy to support the implementation of Law No. 7 of 2024 on the Harmonization of Tax Regulations (UU HPP), designed with consideration for vulnerable groups in society. Not all goods and services will be subject to the 12% VAT increase, as certain sectors are excluded from this policy. Exemptions include essential goods such as rice, meat, eggs, fish, and milk; education services; healthcare services; and public transportation services, all of which will remain subject to a 0% VAT. The VAT adjustment will primarily apply to luxury goods and services, such as premium food products, VIP hospital services, and high-cost international-standard education.
To support lower-income groups, the Indonesian government is also providing social protection measures, including food assistance, a 50% electricity discount, and other forms of aid. Additionally, various tax incentives are being offered, such as the extension of the 0.5% Final Income Tax (PPh Final) for MSMEs, PPh 21 DTP incentives for industries involved in certain projects, and multiple VAT incentives, with a total allocation of IDR 265.6 trillion for 2025.
The increase in the VAT rate to 12% aims to create harmony within the national tax system. The Indonesian government has ensured that this policy will not burden low-income communities by exempting essential goods from VAT. This measure aligns with efforts to protect purchasing power and stimulate economic growth. The tax rate adjustment reflects the government’s initiative to boost state revenue to finance various development programs while prioritizing basic needs by exempting staple foods from taxation.
The Indonesian government expects the VAT increase to positively impact national economic stability. By implementing this new rate, it also aims to raise public awareness of contributing to development through taxes. At the same time, the tax exemptions on essential goods are intended to maintain price stability and safeguard the purchasing power of low-income households. This policy underscores the Indonesian government’s commitment to balancing the country’s fiscal needs with the protection of vulnerable populations. This strategic move is anticipated to strengthen Indonesia’s tax structure while supporting sustainable economic recovery.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of the leading corporate law firms in Indonesia, with extensive experience handling similar matters. Our team of professional corporate and civil lawyers makes us one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author:
Dewi Susanti