Indonesia’s value-added tax (VAT) rate will increase from 11% to 12% in January 2025. This adjustment is required under the Tax Provisions Harmonization Act and goals to enhance fiscal sustainability.
The announcement was made by the Minister of Finance of Indonesia, Sri Mulyaniduring a working meeting with the House of Representatives on Wednesday, November 13, 2024.
Indonesia is currently the country with the second highest VAT rate in Southeast Asia, after the Philippines which leads with a rate of 12%. From April 1, 2022, the VAT rate in Indonesia increased from 10% to 11%, and the federal government plans to further increase it to 12%. If the directive is implemented, Indonesia will likely be level with the Philippines at the highest of the ASEAN VAT rankings.
Indonesia’s VAT position in ASEAN
According to CNBC IndonesiaThe PricewaterhouseCoopers (PwC) report for 2023-2024 shows that the VAT rate in Indonesia is already one in all the very best within the ASEAN region.
Cambodia and Vietnam impose a VAT rate of 10%, followed by Singapore at 9% and Malaysia, which recently increased its service tax from 6% to eight% in March 2024. Meanwhile, Thailand and Laos maintain a VAT rate of seven%, Myanmar applies a 5% trade tax, and Timor-Leste only imposes an import sales tax of two.5%.
Government justification for the VAT increase
Finance Minister Sri Mulyani emphasized that the choice to extend VAT will likely be accompanied by comprehensive social communication. She stressed the importance of maintaining the nice condition of the state budget (APBN) through well-targeted tax policy, while ensuring its timely implementation.
In turn, based on CNBC IndonesiaTelisa Aulia Falianty, senior professor of monetary economics on the University of Indonesia, warned that the VAT increase could reduce consumers’ purchasing power, potentially weakening household consumption – a key driver of the national economy.
Telisa really useful delaying the rise until the federal government is capable of strengthen consumers’ purchasing power through high-quality job creation and fair wage policies.
Read also: The island nation raises its entertainment tax to 40-75%, the very best in Southeast Asia
Challenges in Indonesia’s tax policy
As one in all the countries with the very best VAT rates in ASEAN, Indonesia faces significant challenges to make sure that this policy doesn’t have a negative impact on the economy. Careful steps are needed to extend government revenues while protecting the general public good.
