1st January VAT rise to 12% but only on luxury goods
The Indonesian government has increased the Value Added Tax rate from 11% to 12% from a January 2025 on luxury goods only – applicable to certain goods and services. To support the less-well-off, the government has also zero-rated 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.
Legal delay means 12% rate for all invoices
A complication was that the enacted law still refers to all supplies and was not amended to just luxury supplies. As a working compromise (see Regulation No. 131 of 2024 (PMK-131) ) for supplies still at 11%, 12% is used but only calculated as 11/12 ths of the gross amount.
Luxury supplies subject to 12% VAT 2025
Supplies at 12% from 2025:
- Premium rice
- Premium fruits
- Premium meats, such as wagyu and kobe
- Premium fish, such as premium salmon and tuna
- Premium shrimp and crustaceans, such as king crab
- Premium education services, such as expensive and international standard education services
- Premium or VIP medical health services
- Electricity for household customers with 3,500 to 6,600 VA power.
The 11% rate remains valid for essential goods and all services.
The VAT increase was 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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