Public inflation concerns put VAT rise to 12% 1st January 2025 in doubt
The Indonesian scheduled 1% VAT rise to 12% standard rate is in doubt as government and House of Representatives are still debating its implementation.
The VAT increase is mandated by Law Number 7 of 2021 on Tax Regulation Harmonization (UU HPP), which allows for a gradual increase in VAT rates. The initial increase to 11% took effect in April 2022, and the upcoming 12% rate is scheduled for 1st January 2025.
There was been widespread calls from public and business bodies to delay the rise on inflation concerns. Several government spokespeople have in the past days stated that it is a House decision to delay to rise.
April 2022: first stage 10% to 11% VAT increase completed as economy recovers from COVID-19
The increase in VAT is part of a set of reforms to broaden the tax base of southeast Asia’s largest economy. Despite ongoing COVID-19 pandemic issues, the economy grew in quarter 2 of 2021 for the first time in over a year. With some renewed confidence in consumer spending, the government had proposed the tax changes to the House of Representatives on 16 August 2021 as part of the 2022 budget.
Only Saudi Arabia and Nigeria have so far raised VAT rates in the wake of the coronavirus pandemic. Most other countries have temporarily reduced rates, particularly in the most hard hit sectors of tourism and hospitality.
Indonesia introduced Value Added Tax in 1984. There is registration threshold of IDR4.8billion, although there is scope for a voluntary VAT registration.
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