JAKARTA – The Indonesian government through a planned fiscal policy ensures that the increase in Value Added Tax (VAT) rates by 1% does not burden the lower classes. Coordinating Minister for Economic Affairs Airlangga Hartarto emphasized that basic necessities remain free from VAT.
“The 1 percent increase in VAT rates does not apply to goods and services that are basic necessities such as rice, meat, fish, eggs, vegetables, milk, sugar, education services, health services, public transportation services, labor, financial services, polio vaccines, simple houses, and drinking water,” he said.
Minister of Finance, Sri Mulyani Indrawati, added that the increase in VAT would be carried out gradually towards a rate of 12% with a mutual cooperation approach.
“The 1 percent increase in VAT rates is balanced by ensuring proportional contributions from various community groups, while basic necessities remain VAT-free to protect vulnerable communities. The government also bears the burden of the VAT increase on certain goods such as wheat flour, sugar, and cooking oil to maintain price stability,” said Sri Mulyani.
In addition, various incentives are designed to support community welfare and MSME development. Low-income households will receive direct assistance in the form of 10 kg of rice per month for the first two months of 2025, as well as a 50% electricity discount for customers with 2200 VA and below.
“The government provides direct support to the community to ensure purchasing power is maintained, especially amidst the post-pandemic economic recovery,” explained Sri Mulyani.
On the MSME side, the government has extended the 0.5% final income tax incentive until 2025, even eliminating income tax for MSMEs with a turnover of less than IDR 500 million per year. Support for the labor sector is also strengthened through various stimuli, such as work accident insurance subsidies and income tax incentives for workers with salaries of up to IDR 10 million per month.
“The government is committed to providing protection for workers and supporting the productivity of labor-intensive industries through various incentive programs,” added Sri Mulyani.
Through this policy, the government not only manages the impact of the VAT increase, but also strengthens the economic foundation to create inclusive and sustainable growth.
“The government ensures that this policy reflects the principles of justice and mutual cooperation, and provides real benefits to the community. With an incentive allocation of IDR 445.5 trillion in 2025, the focus is directed at the welfare of vulnerable communities and strengthening national competitiveness,” Airlangga emphasized.
This fiscal reform agenda is believed to be able to maintain economic stability, increase purchasing power, and support post-pandemic recovery. This policy is expected to be an important momentum to strengthen the national economy and create equitable social justice.