The Constitutional Court (MK) has rejected the petition for judicial review of Law No. 7/2021 on the Harmonization of Tax Regulations (UU HPP), in particular the related article on Value Added Tax (VAT) rates.

"Constitutional Court justices, as stipulated in MK ruling No. 11/PUU-XXIII/2025, rejected on Thursday, August 14, 2025, the petition for judicial review of the HPP Law," the Constitutional Court says in a statement as quoted on Thursday, August 14, 2025.

The parties who filed the petition came from diverse backgrounds, including housewives, students, private sector workers, Micro, Small, and Medium Enterprises (MSMEs), online motorcycle taxi drivers, and mental health organizations.

Justice Ridwan Mansyur emphasized that the petitioners' arguments regarding Article 4A and Article 7 of the HPP Law were baseless. The VAT increase from 11 percent (April 2022) to 12 percent (no later than January 2025) is considered reasonable, considering that the 10 percent rate has been in effect since 1983.

According to the Constitutional Court, a VAT rate ranging from 5 to 15 percent represents a flexible fiscal policy. The government can adjust the rate according to economic conditions and fiscal needs, while still discussing it with the House of Representatives (DPR) in the Draft State Budget (RAPBN).

VAT increase

Bhima Yudhistira, Director of the Center of Economic and Law Studies (CELIOS), believes that the Constitutional Court's ruling has the potential to open the door to a VAT rate increase of up to 15 percent.

"With the Constitutional Court's rejection of the lawsuit regarding the 15 percent VAT rate, this means the government can easily increase the VAT rate in the future," Bhima told Katadata.co.id on Tuesday, August 19, 2025.

He said that the option of increasing the rate could be implemented next year, given that the State Budget (APBN) is facing a tax revenue shortfall and the risk of a widening deficit.

"The option of increasing the VAT rate could be implemented next year, citing policy flexibility," Bhima.

However, he warned that a VAT increase would suppress people's purchasing power and hurt retail businesses.

Syafruddin Karimi, an economist at Andalas University, believes the opportunity for a VAT increase is still wide open because the HPP Law provides tariff flexibility in the range of 5-15 percent.

"With full legitimacy from the Constitutional Court, the government can utilize this authority when fiscal needs are pressing or when state spending pressures increase," he said.

Although the rate increase must be discussed with the House of Representatives (DPR), the Constitutional Court ruling sends a strong signal that there is political space for adjusting tax rates, including VAT, which is constitutionally valid.

"The public needs to be prepared because the potential VAT increase does not stop at 12 percent. VAT can move higher depending on the country's fiscal needs," Syafruddin said.

He also emphasized that the Constitutional Court's ruling strengthens the government's position in securing tax revenue.

"This decision opens up broader fiscal space because the 12 percent VAT rate is now legal and cannot be challenged," he said.

He also assessed that the potential for tax revenue would increase, considering that VAT is a major contributor to the state's revenue structure.

"The government now has a strong legal basis to ensure that tax revenue targets can be realized without legal obstacles," Sjafruddin concluded.