Indonesia confirms 12% VAT rate in 2025, but necessities are exempt from tax
Indonesia
VAT
2024-12-18 09:08:49
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The Indonesian government has confirmed that the Value Added Tax (VAT) will increase to 12% in 2025 as planned, as stipulated in Law No. 7 of 2021 on the Harmonization of Tax Regulations (UU HPP). However, the government stressed that basic goods and services will not be affected by this VAT increase.
The list of essential goods and services exempt from VAT includes rice, meat, fish, eggs, vegetables, milk, consumer sugar, education services, healthcare services, public transportation, labor services, financial services, insurance services, polio vaccines and water.
For other food items to which the 12% VAT rate will be applied, the government will implement a stimulus package to mitigate the impact on low-income households. Specifically, the government will provide a 1% VAT subsidy for essential items such as Minyakita (a government-subsidized brand of cooking oil), wheat flour and industrial sugar.
"Therefore, the VAT rate for these items remains at 11%," Minister Airlangga explained, stressing that this measure is essential to maintain the purchasing power of low-income households, especially for essential items, and to support the food and beverage processing industry.
In addition, the government will provide 10 kg of food and rice aid per month to poor households, and implement a 50% discount on electricity bills for two months for households with electricity consumption below 2,200 volt-amperes (VA) to further ease the burden of rising living costs.
President Prabowo had previously stressed that the 12% VAT rate will only apply to specific goods, especially luxury goods. Finance Minister Sri Mulyani Indrawati also reiterated that the current 11% VAT rate does not apply to basic goods and services.
The government estimates that the total value of goods and services currently exempted from the 11% VAT will reach IDR 231 trillion by 2024. With the implementation of the 12% VAT rate in 2025, the total value of VAT exemptions is expected to increase to IDR 265.5 trillion.
