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December 16, 2024 | 05:40 pm
TEMPO.CO, Jakarta - The Indonesian government has confirmed that the increase in Value Added Tax (VAT) to 12% will proceed as scheduled in 2025, as mandated by Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP). However, the government has emphasized that essential goods and services will be exempt from this VAT hike.
“Essential goods needed by the people will be subject to zero percent VAT,” stated Coordinating Minister for the Economy, Airlangga Hartarto, during a press conference held at the Coordinating Ministry for the Economy office in Central Jakarta on Monday, December 16, 2024.
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 usage.
For other food items that will be subject to the 12% VAT rate, the government will implement a stimulus package to mitigate the impact on low-income households. Specifically, the government will subsidize 1% of the VAT on essential goods such as Minyakita (a government-subsidized cooking oil brand), wheat flour, and industrial sugar.
“So the VAT rate for these items remains at 11%,” Minister Airlangga explained, stressing that this measure is crucial to maintain the purchasing power of low-income households, particularly with regard to essential goods, and to support the food and beverage processing industry.
Furthermore, the government will distribute food and rice assistance of 10 kilograms per month for poor households and implement a two-month 50% discount on electricity bills for households consuming up to 2,200 volt-amperes (VA) to further alleviate the burden of rising living costs.
President Prabowo Subianto has previously emphasized that the 12% VAT rate will only be applied selectively, particularly to luxury goods. Finance Minister Sri Mulyani Indrawati has also reiterated that the current 11% VAT rate does not apply to essential goods and services.
The government estimates that the total value of goods and services currently exempt from the 11% VAT rate amounts to Rp231 trillion in 2024. With the implementation of the 12% VAT rate in 2025, the estimated total value of VAT exemptions will increase to Rp265.5 trillion.
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