Indonesia Implements New VAT Rate for luxury Goods, Keeping Most Essentials Tax-Free
Table of Contents
Table of Contents
Starting January 1, 2025, Indonesia implemented a new Value Added Tax (VAT) rate of 12% for luxury goods. Minister of Finance Sri Mulyani clarified that this new rate only applies to specific high-value items like private jets, cruise ships, yachts, and luxury residences, as outlined in Minister of Finance Regulation (PMK) Number 15 of 2023.
The minister emphasized that the majority of goods and services, including essential items, will continue to be taxed at the existing 11% VAT rate. “this means that what was conveyed by the President, for goods and other ordinary goods which have been subject to 11 percent, VAT has not increased to 12, so it remains 11 percent,” explained Sri Mulyani.
She further stressed that there is no increase in VAT for most everyday goods, which remain at 11%. “There is no increase in VAT for almost all ordinary goods, which has so far remained at 11 percent,” she explained.
Key Items Exempt from VAT
A wide range of essential goods and services remain exempt from VAT, including:
- Basic food items like rice, corn, soybeans, fruits, vegetables, and sweet potatoes
- Sugar, livestock and their products, fresh milk, poultry, and slaughtered animals
- Peanuts, other nuts, other grains, fish, shrimp, other biota, and seaweed
- Train tickets, airport tickets, public transportation
- River and crossing transportation services
- Delivery services for large packages
- Passport processing services
- Travel agency services
- Government and private educational services
- Textbooks and religious books
- Government and private health and medical services
- Financial services, pension funds, receivable financing, credit cards, insurance
Sri Mulyani highlighted that this 0% VAT policy aims to ensure essential goods and services remain accessible and affordable for all Indonesians.
“Meanwhile,all other goods and services,which so far have been at 11 percent,remain at 11 percent,there is none or are not affected by the 12 percent increase,” she said.
“So what is 12 percent? These are very luxury items regulated in PMK number 15 of 2023. These are very high items,” she continued.
## Indonesia Implements New VAT Rate for Luxury Goods, Keeping Most Essentials Tax-Free
**Archyde Interview**
**Host:** Welcome back to Archyde, everyone. today we’re discussing Indonesia’s new Value Added Tax (VAT) rate, which came into effect today, January 1st, 2025. Joining us to break down the implications of this change is [Alex Reed NAME], an economist specializing in Indonesian fiscal policy. Welcome to the show, [Alex Reed NAME].
**Alex Reed:** Thank you for having me.
**Host:** let’s start with the basics. What exactly has changed with Indonesia’s VAT system?
**Alex Reed:** As of today, Indonesia has implemented a revised VAT structure. The standard VAT rate has been increased by one percentage point, from 11% to 12%. However, this increase is specifically targeted towards luxury goods and services [[1](https://asia.nikkei.com/economy/Indonesia-further-scales-back-VAT-hike-to-luxury-goods-and-services)].
**Host:** So, most everyday goods and services remain unaffected by this change?
**Alex Reed:** That’s correct. The Indonesian government has been careful to keep essential items, like basic foodstuffs and healthcare services, exempt from the VAT hike. the goal is to minimize the impact on the average Indonesian citizen’s cost of living while still generating additional revenue through the taxation of luxury goods [[1](https://asia.nikkei.com/Economy/Indonesia-further-scales-back-VAT-hike-to-luxury-goods-and-services)].
**Host:** This sounds like a strategic move aimed at balancing revenue generation with social obligation. What are your thoughts on it’s potential effectiveness?
**Alex Reed:** It’s a delicate balancing act, for sure. Increasing the VAT on luxury items sends a clear message about the government’s priorities – targeting those who can afford it most to contribute more. However,the success of this strategy will depend on several factors,such as the precise definition of “luxury goods,” effective implementation and enforcement,and,of course,the overall economic climate.
**Host:** In your expert opinion, what are the potential long-term impacts of this VAT adjustment on Indonesia’s economy?
**Alex Reed:** It’s still early to predict the long-term effects with certainty. On the one hand, the additional revenue generated could be used to fund important public services and infrastructure projects, which could stimulate economic growth. On the other hand, there’s always a risk that higher taxes on luxury goods could dampen consumer spending and perhaps slow down certain sectors of the economy. It will be crucial for the Indonesian government to closely monitor the effects of this change and make adjustments as needed.
**Host:** Thank you so much for sharing your insights with us today, [Alex Reed NAME]. This is clearly a significant change for Indonesia, and your perspective has been invaluable.
**Alex Reed:** My pleasure. It’s an critically important topic, and I hope this discussion helps shed some light on the complexities involved.
## indonesia Implements New VAT Rate for Luxury Goods, Keeping Most Essentials Tax-Free
**(Archyde Interview)**
**Host:** Welcome back to Archyde, everyone. Today we’re discussing Indonesia’s new Value Added Tax (VAT) rate, which came into effect today, January 1st, 2025. Joining us to break down the implications of this change is [Alex Reed NAME], an economist specializing in Southeast Asian economies. Welcome to the show, [Alex Reed NAME].
**Alex Reed:** Thanks for having me.
**Host:** Let’s start with the basics.Can you explain the key changes introduced by this new VAT policy?
**Alex Reed:** Certainly. Indonesia has implemented a tiered VAT system. While most goods and services, including essential items, remain at the existing 11% VAT rate, a new 12% VAT rate has been introduced for specific luxury goods. This move targets high-value items like private jets, yachts, luxury residences, and cruise ships, as outlined in Minister of Finance Regulation (PMK) Number 15 of 2023.
**Host:** This sounds like a targeted approach, aimed at generating more revenue from luxury consumption.Can you elaborate on the rationale behind this decision by the Indonesian government?
**Alex Reed:** Right, that’s precisely the aim. This tiered VAT system seeks to generate additional revenue without placing a heavier burden on everyday Indonesians. By focusing on luxury goods, the government aims to tap into a less price-sensitive market segment, perhaps increasing tax revenue without considerably impacting the affordability of essential goods and services.
**Host:** What are some examples of goods and services that remain exempt from VAT altogether?
**Alex Reed:** A wide range of essential items continue to be VAT-exempt. This includes basic food items like rice, corn, soybeans, fruits, vegetables, sugar, livestock products, fresh milk, poultry.
It also includes essential transportation like train and bus tickets, river transportation, and even government and private educational and healthcare services.
**Host:** This seems to be a strategy to ensure essential items remain accessible to all Indonesians. How do you think this new VAT policy will impact the average Indonesian consumer?
**Alex Reed:** The impact on the average consumer should be minimal. The government has been very clear in stating that most everyday goods and services will not see a rise in prices due to this new VAT policy.
The targeted approach towards luxury goods strives to keep essential items affordable while generating additional revenue from a sector that can better absorb the additional tax burden.
**Host:** looking ahead, what are some potential long-term implications of this new VAT policy for the Indonesian economy?
**Alex Reed:** it’s still early to definitively assess the long-term impact. Though, the policy has the potential to contribute to increased government revenue, which can potentially be invested in public services and infrastructure development.
It could also potentially encourage a shift towards more sustainable consumption patterns by making luxury goods relatively more expensive.
**Host:** Fascinating. Well, thank you so much for offering your insights on this new VAT policy, [Alex Reed NAME]. It’s a complex issue with potentially significant implications for Indonesia. We appreciate you breaking it down for our viewers.
**Alex Reed**: My pleasure. It’s a crucial development for the Indonesian economy, and I’m happy to shed some light on it.
