An increase in Indonesia’s standard VAT rate from 11% to 12% applies to the delivery of luxury items—the rate increase was originally planned to apply across the board. The regulation defines luxury items as goods that are not considered basic necessities, consumed by high-income earners.
The new rate, which applies as from 1 January 2025, is an essential component of the government’s efforts to boost state revenue and support national economic development and is part of broader tax reform measures aimed at ensuring fiscal sustainability, reducing the budget deficit, and addressing rising expenditures for infrastructure, public services and social programs. By aligning the VAT rate with regional standards, the government seeks to strengthen Indonesia’s tax base while maintaining competitiveness in the global economy.
Ministry of Finance Regulation No. 131 Year 2024, issued on 31 December 2024, provides details on the scope and VAT rate. The 12% rate applies on the delivery of goods and the provision of services that are subject to Luxury Goods Sales Tax, calculated based on the selling price or import value. The delivery of VAT-able goods and services that are not subject to Luxury Goods Sales Tax and that previously were taxed at the 11% rate remains unchanged.
The government has ensured that essential goods such as rice, meat, etc. remain exempt from VAT, as are public services such as education, healthcare and transportation. Further, to maintain public purchasing power and support the national economy amid the VAT rate adjustment, the government has committed to the economic stimulus package that includes various incentives for households, the middle class and businesses.
Implementation of the new VAT rate requires clarity, as the government is in the process of drafting detailed regulations regarding the list of VAT-able goods and services subject to the 12% rate. The regulations should provide legal certainty and ensure smooth implementation by outlining which items fall within the scope of the new VAT category while maintaining exemptions for essential goods and public services. The guidelines will also help businesses and taxpayers align their compliance with the updated VAT framework.
Irwan Kusumanto
Suwenny Leonardi
BDO in Indonesia
The new rate, which applies as from 1 January 2025, is an essential component of the government’s efforts to boost state revenue and support national economic development and is part of broader tax reform measures aimed at ensuring fiscal sustainability, reducing the budget deficit, and addressing rising expenditures for infrastructure, public services and social programs. By aligning the VAT rate with regional standards, the government seeks to strengthen Indonesia’s tax base while maintaining competitiveness in the global economy.
Ministry of Finance Regulation No. 131 Year 2024, issued on 31 December 2024, provides details on the scope and VAT rate. The 12% rate applies on the delivery of goods and the provision of services that are subject to Luxury Goods Sales Tax, calculated based on the selling price or import value. The delivery of VAT-able goods and services that are not subject to Luxury Goods Sales Tax and that previously were taxed at the 11% rate remains unchanged.
The government has ensured that essential goods such as rice, meat, etc. remain exempt from VAT, as are public services such as education, healthcare and transportation. Further, to maintain public purchasing power and support the national economy amid the VAT rate adjustment, the government has committed to the economic stimulus package that includes various incentives for households, the middle class and businesses.
BDO Insight
Implementation of the new VAT rate requires clarity, as the government is in the process of drafting detailed regulations regarding the list of VAT-able goods and services subject to the 12% rate. The regulations should provide legal certainty and ensure smooth implementation by outlining which items fall within the scope of the new VAT category while maintaining exemptions for essential goods and public services. The guidelines will also help businesses and taxpayers align their compliance with the updated VAT framework.Irwan Kusumanto
Suwenny Leonardi
BDO in Indonesia