Jakarta – The Indonesian government recently announced a 1% increase in Value Added Tax (VAT) rates which will be enforced starting 2025. This step aims to strengthen state revenues in facing global economic challenges and support infrastructure development.
Finance Minister Sri Mulyani said the decision had been considered “for the sake of the state budget” and “not blindly”. According to her, VAT in Indonesia is still relatively low compared to other countries.
“The VAT rate in Indonesia compared to many countries in the world is still relatively low, if we look at both emerging countries or countries in the region and the G20,” said Sri Mulyani.
The former World Bank Director said the government was careful in implementing the VAT policy. Learning from the increase in VAT from 10% to 11%, he said, at that time the Indonesian economy was relatively stable and even showed indications of improvement in several aspects. After the 11% VAT was implemented, the government launched various stimuli for the community.
“By 2023, commodity prices have also started to fall, as we have experienced until 2024. We see the number of increasing workers, formal workers, and also PPh (income tax) 21 deposits experiencing a double-digit increase, and inflation continues to be maintained low,” said the Minister of Finance.
Meanwhile, Coordinating Minister for Economic Affairs, Airlangga Hartarto, said that increasing the VAT rate to 12% was not the government’s wish. According to him, the government is only following the mandate of Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP). Article 7 paragraph 1 of the HPP Law states that the VAT rate of 12% will apply no later than January 1, 2025.
“The government will cover the needs of other food items subject to 12 percent Value Added Tax or VAT, which is 1% for low-income people,” he said.
On the other hand, the Deputy for Coordination of Management and Development of State-Owned Enterprises at the Coordinating Ministry for Economic Affairs, Ferry Irawan, said that the risk of rising inflation has been anticipated, which is reflected in the presence of a food aid stimulus package and a 50% electricity discount in January-February 2025.
“The incentives were given for two months to maintain the inflation rate in the first quarter, which is believed to play an important role in determining the inflation rate throughout the year,” concluded Ferry.
For your information, along with the 1% increase in VAT rates, the Government has prepared an economic stimulus package targeting six aspects, namely households, workers, MSMEs, labor-intensive industries, electric and hybrid cars, and property. The stimulus package is designed as comprehensively as possible to provide a balance between economic data and input from various parties.
