Indonesia's Value-Added Tax (VAT) rate will increase from 11% to 12% in January 2025. This adjustment is mandated by the Harmonization of Tax Regulations Law and aims to enhance fiscal stability.
The announcement was made by Indonesia’s Minister of Finance, Sri Mulyani, during a working meeting with the House of Representatives on Wednesday, November 13, 2024.
Indonesia is currently recorded as the country with the second-highest VAT rate in Southeast Asia, following the Philippines, which leads with a 12% rate. Since April 1, 2022, Indonesia’s VAT rate has increased from 10% to 11%, with the government planning to raise it further to 12%. If implemented, Indonesia will tie with the Philippines at the top of the ASEAN VAT rankings.
Read also: Is It the End of High Ticket Prices? Indonesia Considers 11% Airfare Reduction with Tax Elimination
Indonesia's VAT Position in ASEAN
According to CNBC Indonesia, based on the PricewaterhouseCoopers (PwC) report for 2023-2024, Indonesia’s VAT rate is already among the highest in 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 8% in March 2024. Meanwhile, Thailand and Laos maintain a VAT rate of 7%, Myanmar applies a 5% commercial tax, and Timor-Leste only imposes an import sales tax of 2.5%.
Government Justification for the VAT Increase
Finance Minister Sri Mulyani emphasized that the decision to raise VAT will be accompanied by comprehensive public communication. She stressed the importance of maintaining the health of the state budget (APBN) through well-targeted tax policies while ensuring the implementation is timely.
On the other hand, according to CNBC Indonesia, Telisa Aulia Falianty, a Senior Professor of Monetary Economics at the University of Indonesia, cautioned that the VAT hike could suppress consumer purchasing power, potentially weakening household consumption—a critical driver of the national economy.
Telisa recommended delaying the increase until the government can strengthen consumer purchasing power through quality job creation and fair wage policies.
Read also: This Island Nation Raises Entertainment Tax to 40-75%, Highest in Southeast Asia
Challenges in Indonesia's Tax Policy
As one of the countries with the highest VAT rates in ASEAN, Indonesia faces significant challenges ensuring that this policy does not negatively impact the economy. Careful steps are needed to boost state revenues while safeguarding public welfare.
