S. Dian Andryanto, Michelle Gabriela, Jakarta – The government ensures that the 12 percent increase in Value Added Tax or VAT will take effect from January 1, 2025. This policy is mandated by Law Number 7 of 2021 concerning Harmonization of Tax Regulations (HPP Law). Coordinating Minister for Economic Affairs Airlangga Hartarto emphasized that the increase in VAT rates will still pay attention to the principle of justice.
"In accordance with the predetermined schedule, the VAT rate will increase by 12 percent and take effect on January 1, 2025 while still paying attention to the principle of justice," said Airlangga Hartarto in a press conference on the Economic Stimulus Package, Monday, December 16, 2024, in Jakarta.
Goods and services affected by 12 percent VAT
Finance Minister Sri Mulyani Indrawati stated that the VAT increase will be imposed on goods and services that fall into the luxury category. According to her, these goods and services are generally consumed by the richest population groups or the upper-middle-income community.
The following is a list of goods and services categorized as luxury goods that will be subject to 12 percent VAT
- 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.
Some types of basic goods and strategic services will not be subject to VAT. These commodities include:
- Rice
- Meat
- Fish
- Eggs
- Vegetable
- Milk
- Sugar for consumption
- Education services
- Health services
- Public transportation services
- Labor services
- Financial services
- Polio vaccine
- Clean water usage
Economic stimulus to maintain purchasing power
The government has also prepared a number of stimuli to reduce the impact of the VAT increase on people's purchasing power. Some of the policies prepared include:
50 percent electricity discount
The government provides a 50 percent discount on electricity tariffs for customers of 2,200 watts and below. This policy applies from January to February 2025, covering around 81.4 million PLN customers or 97 percent of total customers.
Food assistance
The government will provide rice assistance of 10 kg per month for people in decile 1 and 2 categories.
0.5 percent final income tax incentive for MSMEs
The government extended the 0.5 percent Final Income Tax (PPh) incentive for MSMEs with a turnover of Rp500 million to Rp4.8 billion per year. For MSMEs with a turnover below IDR500 million, the income tax rate remains at 0 percent.
Incentives for property and electric cars
For Property, Government-Borne VAT Incentives are provided for houses with a selling price of up to IDR5 billion. A 100 percent discount applies for the period January-June 2025 and 50 percent for July-December 2025. As for electric and hybrid cars, the government offers incentives in the form of exemptions from VAT and luxury sales tax (PPnBM).
VAT-free strategic services
Several strategic services continue to receive VAT exemption facilities in accordance with Government Regulation (PP) Number 49 Year 2024. These services include:
- Education services
- Medical health services
- Social services
- Public transportation
- Financial services
- Rental of public flats and public houses.