Indonesia

Effective January 1, 2025, the Indonesian government officially increased the value-added tax (VAT) rate on luxury goods and services from 11% to 12%, while the VAT rate on other goods and services remained unchanged.

Indonesia's value-added tax will be raised from 10% to 11% in 2022. Recently, Indonesia raised its value-added tax again, implementing a new 12% value-added tax on all goods from January 1, 2025. The move has raised concerns that it will increase corporate costs and further depress purchasing power. Indonesian media expect that the policy will have an impact on retail, automotive and real estate.

In the face of controversy, the scope of the VAT increase was compressed. Indonesian President Prabowo Subianto specifically clarified that the VAT increase would only apply to luxury goods and services, such as private jets, yachts and luxury homes. The VAT increase is aimed at consumer goods for the affluent segment of society. The VAT rate on other goods and services remains unchanged at the previous rate of 11%.

Prabowo said the VAT increase was aimed at balancing fiscal needs with protecting public purchasing power and that "the gradual increase in VAT is aimed at avoiding a significant impact on inflation, purchasing power and economic growth". He also reiterated the government's commitment to implementing policies that benefit the people and encourage equitable economic development.

While implementing the new value-added tax, the Indonesian government has also introduced a series of preferential relief measures. It mainly includes: exemption from VAT on rice, meat, fish, eggs, vegetables, milk, sugar and other major foods; Exempt workers earning 10 million rupiah ($617) or less a month in the three labour-intensive industries of textiles, shoes and furniture from income tax; A 50% discount on electricity prices for two months for 97% of households in Indonesia; Offering tax breaks for electric vehicle purchases; Provide assistance to low-income families, etc.