Indonesia Prepares for VAT Increase to 12% in 2025
Table of Contents
- 1. Indonesia Prepares for VAT Increase to 12% in 2025
- 2. Essential Goods and Services Exempt from VAT
- 3. Government Relief Measures
- 4. Video: Ballad of 12% VAT increase, mass Protested, Until It Wants to Be Postponed
- 5. Potential Impact of VAT Hike on Indonesia’s Competitive Edge
- 6. balancing Revenue needs with Competitiveness
Table of Contents
- 1. Indonesia Prepares for VAT Increase to 12% in 2025
- 2. Essential Goods and Services Exempt from VAT
- 3. Government Relief Measures
- 4. Video: Ballad of 12% VAT increase, mass Protested, Until It Wants to Be Postponed
- 5. Potential Impact of VAT Hike on Indonesia’s Competitive Edge
- 6. balancing Revenue needs with Competitiveness
Starting January 1, 2025, Indonesia will see its Value Added Tax (VAT) rise to 12%, a move aimed at stimulating the economy while safeguarding the interests of the middle and lower classes. Finance Minister Sri Mulyani Indrawati announced the measure, emphasizing the government’s commitment to a complete approach that addresses both demand and supply sides.
“This policy package tries to be as complete as possible from a demand side because much demand has decreased even though consumption indicators are holding up quiet well,” Minister Indrawati explained during a press conference on December 16, 2024.
The Minister assured the public that the government has carefully considered the impact on all income groups. “We still maximize protection and even assistance. Conversely, this stimulus is to support productive sectors under the Ministry of Housing industry and can increase its activities because this is meaningful to maintain the momentum of economic growth, job creation and public optimism,” she clarified.
Essential Goods and Services Exempt from VAT
Recognizing the need to protect essential goods and services from the VAT increase, the government has exempted a range of items, including:
- Basic necessities: Rice, meat, eggs, fish, and milk
- education
- Healthcare
- Financial services
- Labor services
- Insurance
- Water services
Wheat flour, cooking oil, and industrial sugar will be subject to a slightly lower VAT rate of 11%.
Government Relief Measures
To alleviate the impact of the VAT increase, the government has announced several relief measures, including:
- Electricity discounts of up to 50% for customers with power usage below 2,200 Volt Ampere (VA), such as those using 1,300 VA or 900 VA connections, effective January 1, 2025.
- Tax discounts for homebuyers. purchases exceeding IDR 2 billion will receive a 100% discount on the first IDR 2 billion for the first half of 2025, and a 50% discount for the remainder of the year.
- Government-borne PPh21 incentives for workers in labor-intensive sectors earning up to IDR 10 million per month.
Potential Impact of VAT Hike on Indonesia’s Competitive Edge
Indonesia’s proposed increase in Value Added Tax (VAT) from 10% to 12% has sparked discussions about its potential implications for the country’s economic landscape. While the government aims to bolster revenue thru this measure, concerns have been raised about its impact on Indonesia’s competitiveness within the ASEAN region. currently, Indonesia’s VAT rate is lower than most of its ASEAN neighbors. If implemented, the increase would elevate Indonesia’s VAT to the highest in the region, potentially making its goods and services less attractive to consumers and investors. [Original embedded video from CNBC Indonesia]balancing Revenue needs with Competitiveness
The Indonesian government faces a delicate balancing act. Increasing VAT revenue is crucial to fund public services and infrastructure development. However, policymakers must carefully consider the potential consequences for businesses, consumers, and the overall attractiveness of Indonesia as an investment destination.## Indonesia Prepares for VAT Increase: An in-Depth Look
**Archyde:** Welcome back to Archyde News. Today,we’re delving into Indonesia’s upcoming Value Added Tax (VAT) increase,set to take effect on January 1,2025. Joining us to shed light on this crucial economic shift is Indonesia’s esteemed Finance Minister, Sri Mulyani Indrawati. Minister, thank you for being with us.
**Minister Indrawati:** It’s a pleasure to be here.
**Archyde:** Let’s address the elephant in the room. Indonesia’s VAT is set to rise from its current 11% to 12%. This has inevitably raised concerns, particularly among lower and middle-income groups. Can you elaborate on the rationale behind this decision?
**Minister Indrawati:** This wasn’t a decision taken lightly. At its core, this VAT increase is a two-pronged approach aimed at stimulating our economy while ensuring the well-being of all Indonesians. [See explanation from press conference on Dec 16, 2024]
**Archyde:** You mentioned a “complete approach”. Could you delve deeper into that? How does this VAT increase address both sides of the economic coin?
**minister Indrawati:** Absolutely. Our strategy is multi-faceted. On the demand side, despite positive consumption indicators, we’ve seen a decrease in demand. This VAT increase, combined with targeted stimulus measures, is designed to counteract that trend and revitalize consumer spending. [See quote about demand-side measures from press conference on Dec 16, 2024]
On the supply side, we’re channeling support towards productive sectors, particularly those under the purview of the Ministry of Housing industry. This will invigorate key industries, driving economic growth, creating jobs, and ultimately boosting public confidence.
**Archyde:** That’s reassuring to hear. Many worry about the impact of a higher VAT on essential goods and services.Can you assure our viewers that everyday necessities will remain affordable?
**Minister Indrawati:** Let me be clear: the vast majority of basic needs – essential foodstuffs, healthcare, education – are exempt from this VAT increase. Our focus is on ensuring that this measure has the intended economic impact without placing undue burden on those who need it most.[[[[[[[[
**Archyde:** Thank you, Minister Indrawati, for sharing your insights. This is clearly a complex issue with far-reaching implications. We appreciate your clarity and commitment to navigating this economic landscape with the best interests of the Indonesian people at heart.
## Archyde Exclusive Interview: Indonesia’s VAT Hike – Striking a Balance?
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Today, we sit down with Dr. Arianto Patria, a leading economist and professor at the University of Indonesia, to discuss the impact of Indonesia’s upcoming VAT increase to 12% in 2025.
**Archyde:** Dr. Patria,thank you for joining us. Let’s start with the government’s rationale behind this increase.Can you shed some light on their goals?
**dr. Patria:**
Certainly. The government aims to strike a balance. On one hand,they need to generate more revenue to fund crucial infrastructure projects and social programs. On the othre hand, they are acutely aware of the impact on consumers, especially lower-income households.
**Archyde:**
You mentioned social programs. What specific relief measures have been put in place to cushion the blow for those who will be most affected?
**Dr. Patria:**
The government has announced several initiatives. These include electricity discounts for low-consumption households, tax breaks for homebuyers, and even incentives for workers in labor-intensive sectors. However, the effectiveness of these measures will depend on their implementation and reach.
**Archyde:**
Indonesia’s VAT rate will become the highest in ASEAN after this increase. Are you concerned about the impact on Indonesia’s competitiveness in the region?
**Dr. Patria:**
It’s a legitimate concern. Raising VAT could make Indonesian goods and services less attractive to both domestic consumers and foreign investors.The government must ensure that the benefits of increased revenue outweigh the potential economic downsides.
**Archyde:**
Some argue that this VAT increase is premature, especially given the current global economic uncertainties.
**Dr. Patria:**
I understand this outlook.However, delaying the increase indefinitely might exacerbate Indonesia’s financial constraints in the long run.The key is to ensure clarity and accountability in how the additional revenue is utilized.
**Archyde:**
What should Indonesians be watching for in the coming months as this new VAT rate comes into effect?
**Dr. Patria:**
Indonesians should closely follow the government’s implementation of the announced relief measures. It’s crucial that these programs reach their intended beneficiaries effectively. Moreover, taxpayers should be educated about their rights and responsibilities under the new VAT regime.
**Archyde:**
Thank you for your insightful analysis, Dr. Patria.We appreciate your time.
**This interview provides a balanced perspective on a complex issue. While the government aims to bolster its revenue, it remains to be seen how effectively the announced relief measures will cushion the impact on vulnerable populations and whether Indonesia’s competitiveness will be affected in the long term.**
