Indonesia Plans VAT Hike to 12% in 2025

Indonesia will implement a value-added tax (VAT) hike from 11% to 12% starting January 2025, alongside a series of economic measures aimed at mitigating the impact on consumers and economic growth. Exemptions will remain for essential goods and services, including staple foods and public transport, while electricity tariffs for middle-income households will be reduced by 50%. The government will also not collect income tax from employees in labor-intensive sectors earning below 10 million rupiah monthly, and there will be VAT exemptions on certain property sales. The VAT increase comes despite public dissatisfaction over rising costs and concerns that tax policies disproportionately affect lower-income groups. The government aims to balance fiscal health with consumer purchasing power, as consumption is vital for Indonesia's economy, which has seen growth slow to 4.95% in the third quarter. Finance Minister Sri Mulyani emphasized that the reforms are necessary to maintain a healthy state budget and improve tax collection efficiency amidst significant evasion issues.