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The Value Added Tax (VAT) Will Increase By 1% On January 1, 2025, As Confirmed By The Ministry Of Finance, Which Assures That The Purchasing Power Of The Public Will Remain Secure

The Ministry of Finance (Kemenkeu) has assured that the purchasing power of the lower-middle class will remain stable despite the increase in the value-added tax (VAT) by 1% to 12% effective January 1, 2025. The Head of the Fiscal Policy Agency (BKF) of Kemenkeu, Febrio Nathan Kacaribu, recently emphasized in a written statement that the national economy remains robust even with the VAT set at 12%. Furthermore, Febrio anticipates that economic growth in 2024 will continue to exceed 5.0%. For 2025, he expressed confidence that Indonesia's economic growth will align with the state budget target of 5.2%. "Economic growth in 2024 is expected to remain above 5.0%. The impact of the VAT increase to 12% on economic growth is not significant," Febrio stated in an official announcement on Friday, December 27, 2024. 

The increase in the VAT rate from 11% to 12% is mandated by Law Number 7 of 2021 concerning the Harmonization of Tax Regulations. In accordance with the agreement between the Government and the House of Representatives, the rate increase is being implemented in stages, from 10% to 11% starting April 1, 2022, and subsequently from 11% to 12% on January 1, 2025. This gradual increase in VAT is intended to minimize significant impacts on the purchasing power of the public, inflation, and economic growth. According to government calculations, the current inflation rate is low at 1.6%. The effect of raising the VAT from 11% to 12% is estimated at 0.2%. Inflation will be maintained at a low level in line with the 2025 state budget target, which is projected to be between 1.5% and 3.5%. "Thus, the increase in VAT from 11% to 12% will not significantly reduce the purchasing power of the public," stated Kemenkeu in its written statement. Essential goods and services will continue to benefit from VAT exemptions or a 0% VAT rate. Examples of such goods and services include: 

1. Essential commodities include rice, unhusked rice, corn, sago, soybeans, salt, meat, eggs, milk, fruits, and vegetables.   

2. Services encompass medical healthcare services, social services, financial services, insurance services, educational services, public transportation services both on land and water, labor services, as well as the rental of public housing and general residences.   

3. Other items include books, holy scriptures, polio vaccines, simple houses, subsidized housing, electricity, drinking water, and various other VAT incentives, which are collectively estimated to amount to Rp265.6 trillion for the year 2025. 

Tag: Kemenkeu Value Added Tax