The government has officially announced an increase in the Value Added Tax (VAT) rate from 11 percent to 12 percent which will take effect starting January 1, 2025. Ministry of Finance, Sri Mulyani Indrawati, assessed that Indonesia’s VAT rate is still relatively low when compared to other countries in the region and among G20 members.
“The VAT rate in Indonesia is still relatively low compared to many countries in the world. If we look at emerging countries, countries in the region, and the G20,” Sri Mulyani told a press conference at the Coordinating Ministry for the Economy Building, Jakarta, on Monday, December 16, 2024.
She cited that several countries with similar economies have higher VAT rates and tax ratios than Indonesia. Brazil has a VAT rate of 17 percent and a tax ratio of 24.67 percent; South Africa has a VAT rate of 15 percent and a tax ratio of 21.4 percent; or India with a VAT rate of 18 percent and a tax ratio of 17.3 percent. Meanwhile, Indonesia with VAT of 12 percent and has a tax ratio of 10.4 percent.
However, Indonesia’s VAT rate is still relatively higher compared to several ASEAN countries. Malaysia sets a VAT rate of 10 percent, while Vietnam applies a VAT incentive of 8 percent. Singapore sets a VAT rate of 9 percent and Thailand at 7 percent.
Furthermore, Sri Mulyani emphasized that the VAT increase policy takes into account factors of people’s purchasing power and economic stability.
“We understand the views of various parties. However, data shows that household consumption remains stable and inflation has experienced a relatively low decline at 1.5 percent,” she cited.
She added that this policy will be implemented carefully by paying attention to household consumption, inflation, and people’s purchasing power. This step is considered a strategic effort to increase the tax ratio and strengthen the state revenue base.
Meanwhile, Coordinating Minister for the Economy, Airlangga Hartarto, said that the determination of the 12 percent VAT rate was in accordance with the mandate stipulated in Law No. 7/2021 on the Harmonization of Tax Regulations (HPP).
“In accordance with the schedule stipulated in the HPP Law, next year’s VAT rate will increase to 12 percent as of January 1, 2025,” Airlangga cited.
Government ensures that strategic goods and services, including some basic necessities and essential goods (bapokting), will still receive facilities for exemption from VAT. With this increase, the government hopes to increase the tax contribution to Gross Domestic Product (GDP) without putting excessive pressure on public consumption.
