Airlangga: Government Not Behind 12 Percent VAT Hike
Indonesia‘s VAT Hike: Government Cites Legal mandate, Rolls Out Relief Measures
Jakarta, Indonesia – Indonesia’s Value Added Tax (VAT) is set to rise to 12% in 2025, a move the government insists is mandated by law, not a policy preference. Coordinating Minister for Economic Affairs Airlangga Hartarto emphasized that the increase, stipulated in the 2021 Harmonization of Tax Regulations Law, was a collective decision involving nearly all parliamentary factions.
“The VAT rate for next year is determined by law, and that law was passed by almost all factions in the House of Representatives, accept for PKS,” Hartarto stated, speaking to reporters after accompanying Prabowo Subianto to Egypt.
Recognizing the potential impact on consumer purchasing power, the government has unveiled a series of incentives to cushion the blow. Thes include:
Food Assistance: 16 million families will receive 10 kilograms of rice per month, costing an estimated Rp 4.6 trillion.
Electricity Discounts: 81.1 million PLN customers with power usage of 2,200 VA or less will enjoy a 50% discount on their electricity bills for January and february 2025,requiring rp 10.8 trillion in funding.
Protecting Essential Goods
In addition to these direct relief measures, the government has maintained a zero VAT rate on essential food items such as rice, corn, soybeans, sugar, fresh milk, meat, eggs, and fish.
Furthermore, to shield lower-income households, the 11% VAT rate will be retained for three crucial commodities: cooking oil, wheat flour, and industrial sugar. This is achieved through the VAT DTP incentive, where the government absorbs the 1% increase.
Targeted VAT Application
Hartarto clarified that while sectors like transportation, healthcare, and education are generally exempt from VAT, the new rate will apply to international schools (with annual fees typically exceeding Rp 70 million) and high-cost medical treatments paid out-of-pocket.
The government’s approach aims to balance the need for increased revenue with the imperative of protecting vulnerable populations and ensuring economic stability.
IndonesiaS VAT Hike: A Balancing Act between Revenue and Relief
Jakarta,Indonesia – Indonesia’s value Added Tax (VAT) is set to increase to 12% in 2025,a move the government stresses is legally mandated,not a policy preference. coordinating Minister for Economic Affairs airlangga Hartarto clarified that the increase, stipulated in the 2021 Harmonization of Tax Regulations Law, reflects a collective parliamentary decision.
Acknowledging the potential impact on consumer purchasing power,the government has introduced a series of relief measures. These include:
Food Assistance: 16 million families will receive 10 kilograms of rice monthly,costing an estimated Rp 4.6 trillion.
electricity Discounts: 81.1 million PLN customers with power usage of 2,200 VA or less will enjoy a 50% discount on their electricity bills for January and February 2025, requiring Rp 10.8 trillion in funding.
Protecting Essential Goods:
Maintaining a zero VAT rate on essential food items such as rice, corn, soybeans, sugar, fresh milk, meat, eggs, and fish. The 11% VAT rate will remain in place for cooking oil, wheat flour, and industrial sugar, benefiting lower-income households through the VAT DTP incentive, where the government absorbs the 1% increase.
Targeted VAT Submission:
While sectors like transportation, healthcare, and education generally remain VAT-exempt, the new rate will apply to international schools with annual fees exceeding Rp 70 million and high-cost medical treatments paid out-of-pocket.
This approach aims to balance the need for increased revenue with protecting vulnerable populations and ensuring economic stability.