JAKARTA — The government has officially announced an increase in the Value Added Tax (VAT) rate from 11 percent to 12 percent, which will take effect from January 1, 2025.
The policy is designed specifically for luxury goods, with the aim of creating economic equality and increasing state revenues without burdening low-income people.
Deputy Chairman of the Indonesian House of Representatives for Economic and Financial Coordination, Adies Kadir, explained that the increase in VAT only applies to luxury goods that are generally consumed by the upper class.
Basic necessities, social services, education, health, MSME products, and agriculture remain exempt.
“The luxury consumer group, which mostly comes from the upper class, has very high purchasing power. Thus, they can contribute more to the country,” said Adies.
He added that the policy was designed to create a fairer distribution of income.
“Consumption taxes like this ensure that those who get more facilities also make bigger contributions. The tax will then be used to fund social programs that benefit the underprivileged,” he explained.
Coordinating Minister for Economic Affairs Airlangga Hartarto emphasized that the increase in VAT is part of the tax reform that has been regulated in the Law on Harmonization of Tax Regulations.
“This step is not only to increase state revenue, but also to reduce dependence on foreign debt,” he said.
Airlangga also highlighted that the food and basic needs sector will continue to be protected.
In its official statement, the Coordinating Ministry for Economic Affairs said that this policy is supported by various supporting tools to ensure that economic stability is maintained.
Finance Minister Sri Mulyani Indrawati ensured that the implementation of the policy would not be postponed despite receiving criticism.
“This policy is a mandate of the Law. Its implementation is carried out with good explanation to maintain the health of the APBN,” he said.
According to Sri Mulyani, VAT is the main instrument in optimizing tax revenue and supporting development financing.
With these adjustments, the government hopes to increase competitiveness and long-term economic stability.
Revenue from the increase in VAT rates is expected to support social programs, such as improving the quality of education, health and infrastructure.
The government is optimistic that this policy will be a strategic step in creating a more equitable and sustainable economy. [*]
