Value Added Tax (“VAT”) is an indirect tax that plays a significant role in Indonesia’s taxation system. VAT is primarily regulated under Law Number 8 of 1983 on Value Added Tax on Goods and Services and Sales Tax on Luxury Goods (“Law 8/1983”), as amended several times, most recently by Law Number 7 of 2021 on the Harmonization of Tax Regulations (“HPP Law”). VAT is imposed on transactions involving the supply of taxable goods (Barang Kena Pajak / “BKP”) and taxable services (Jasa Kena Pajak / “JKP”) conducted by individuals or corporate taxpayers registered as taxable entrepreneurs (Pengusaha Kena Pajak / “PKP”).

In addition to Law 8/1983 and the HPP Law, VAT is further governed by Government Regulations and Minister of Finance Regulations that provide technical guidance on VAT collection, calculation, and reporting. Pursuant to Article 4 paragraph (1) of Law 8/1983, VAT is imposed on, among others, the supply of taxable goods, the import of taxable goods, and the supply of taxable services.

As part of the tax reform introduced under the HPP Law, the VAT rate has undergone a gradual increase. Following the increase to 11% (eleven percent) effective 1 April 2022, the VAT rate was further increased to 12% (twelve percent), effective no later than 1 January 2025. From a legal perspective, however, such an increase must continue to adhere to the fundamental principles of fairness, legal certainty, and expediency that underpin Indonesia’s national taxation system.

The increase in the VAT rate is closely linked to the concept of the tax base (Dasar Pengenaan Pajak / “DPP”), which serves as the basis for calculating VAT payable. The DPP generally consists of the selling price, compensation, import value, export value, or other values determined under prevailing tax regulations. Through the HPP Law, the Government introduced a gradual adjustment of the VAT rate as part of efforts to strengthen fiscal capacity and broaden the tax base.

In order to ensure fairness and mitigate the socio-economic impact of the VAT rate increase, the Government issued Minister of Finance Regulation Number 131 of 2024 concerning Value Added Tax Treatment on the Import of Taxable Goods, the Supply of Taxable Goods, the Supply of Taxable Services, the Utilization of Intangible Taxable Goods from Outside the Customs Area within the Customs Area, and the Utilization of Taxable Services from Outside the Customs Area (“PMK 131/2024”).

Under Articles 2 and 3 of PMK 131/2024, the application of the 12% VAT rate and the corresponding DPP differs depending on the type of goods or services involved, including the following:

1. Luxury Goods
2. VAT is calculated by applying the 12% (twelve percent) rate to the DPP in the form of the selling price or import value.
3. Taxable goods with a DPP in the form of the selling price or import value refer to luxury goods, namely motor vehicles and non-motor vehicles subject to Sales Tax on Luxury Goods (Pajak Penjualan atas Barang Mewah).
4. Non-Luxury Goods, Services, and Intangible Goods
5. VAT is calculated by applying the 12% (twelve percent) rate to the DPP in the form of “other value.”
6. The “other value” is determined as 11/12 (eleven twelfths) of the import value, selling price, or compensation.

Article 4 of PMK 131/2024 further stipulates that taxable entrepreneurs who collect, calculate, and remit VAT using:

1. a tax base in the form of “other value,” as separately regulated under tax laws and regulations; or
2. a tax base in the form of a certain amount, as regulated under tax laws and regulations,

are excluded from the provisions set out in Articles 2 and 3 of PMK 131/2024. In such cases, VAT collection, calculation, and remittance must be conducted in accordance with the applicable tax laws and regulations.

Moreover, specific transitional provisions apply to taxable entrepreneurs supplying luxury taxable goods in the form of motor vehicles and non-motor vehicles to end consumers, namely:

1. From 1 January 2025 to 31 January 2025, VAT payable is calculated by applying the 12% (twelve percent) rate to a DPP in the form of “other value,” amounting to 11/12 (eleven twelfths) of the selling price; and
2. Starting from 1 February 2025, VAT payable is calculated by applying the 12% (twelve percent) rate to the DPP in the form of the selling price or import value.

The increase of the VAT rate to 12% undeniably affects the amount of VAT payable. Nevertheless, its actual impact is largely determined by the determination of the tax base. Through the use of the “other value” mechanism, VAT revenue may be increased without imposing a disproportionate burden on public consumption.

From a legal perspective, the regulation of the tax base functions as a key instrument to balance state revenue optimization with taxpayer protection. Accordingly, transparency and legal certainty in determining the DPP are essential to maintaining public trust in the taxation system.

In conclusion, the 12% VAT forms an integral part of Indonesia’s broader tax reform agenda aimed at strengthening state revenue. However, its effectiveness and fairness depend heavily on proportional, transparent, and legally certain regulation of the tax base. A comprehensive understanding of both the VAT rate and the DPP is therefore crucial not only for tax practitioners, but also for academics, businesses, and policymakers.

Should you require further information or legal advice on the matters discussed above, Schinder Law Firm has extensive experience in handling corporate and taxation-related matters. Our team of experienced and professional corporate and civil law practitioners is ready to assist you. Please feel free to contact us at info@schinderlawfirm.com for further consultation.

Author:
Dewi Susanti