President confirms VAT rise to 12% 1st January 2025 but only on luxury goods
On 16th December 2024, an Indonesian government spokesman confirmed a selective increase in Value Added Tax. It will rise from 11% to 12% for January 1, 2025 on luxury goods only – applicable to certain goods and services, including: high-end spend, housing, premium quality rice, meat and fish, and international schools and some hospitals. To support the less-well-off, the government will zero-rate certain staple foods.
The plan had been for a 1% rise for the standard rate from 11% to 12% to apply to all supplies, but widespread calls from public and business bodies to delay the rise on inflation concerns.
The 11% rate will remain valid for essential goods and all services.
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. An initial increase as part of this law to 11% took effect in April 2022.
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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