Indonesia’s business community can breathe a sigh of relief. The new 12% VAT hike, recently announced by Finance Minister Sri Mulyani Indrawati, will only hit luxury goods.
This means that for the average business, everyday operations and consumer purchasing power stay just as they are.
12% VAT Increase only for Luxury Items
Indonesia’s Finance Minister Sri Mulyani Indrawati has finally officially issued Finance Minister Regulation No 131/2024 concerning the increase in value-added tax (VAT) to 12%.
Set on December 30, 2024, the regulation stipulates that the 12% VAT will only be applied to luxury goods.
‘The category is very limited, only for goods that have already been subject to Luxury Goods Sales Tax,’ said Sri Mulyani.
Quoting the official website of Indonesia’s Fiscal Policy Agency of the Ministry of Finance, luxury goods that will be subject to 12% VAT include:
• High-end residential properties (e.g., luxury houses, apartments, townhouses with a selling price above IDR 30 billion)
• Luxury motor vehicles
• Aircraft (except for state purposes or commercial air transport)
• Hot air balloons
• Bullets, firearms, and other firearms (except for state purposes)
• Luxury cruise ships (except for state purposes, public transportation, or tourism businesses)
From Business Perspectives
The new regulation addresses concerns about the potential negative impacts of applying the 12% VAT more broadly.
Initially, both the public and the business community were apprehensive that a blanket 12% VAT would lead to skyrocketing prices, increasing the economic burden on consumers and reducing purchasing power.
Economic observers also pointed out that a 12% VAT would be disproportionate to the 2025 minimum wage. Consequently, various societal levels, particularly the business community, have welcomed this new policy positively. They view it as a crucial effort to maintain the stability and resilience of the Indonesian economy.
The Indonesian Employers’ Association praised the government’s decision, recognizing it as a reflection of their responsiveness to the current economic climate.
“This decision also provides space for the business world to continue encouraging economic activity without having to worry about the significant impact of a broader VAT rate increase,” said Shinta Widjaja Kamdani, Chairperson of the Indonesian Employers’ Association, on Thursday, January 2, 2025.
“In the long term, this also has the potential to encourage a more positive business outlook and strengthen the business world’s contribution to national economic growth,” Shinta stated.
The Indonesian Employers’ Association hopes that the government will continue to engage in dialogue with the business community to refine existing policies and maximize benefits for all parties.
This sentiment was echoed by Yukki Nugrahawan Hanafi, Deputy General Chairman for Coordinating Organizations, Law, and Communication of the Indonesian Chamber of Commerce and Industry. He expressed his organization’s support for this new policy.
As a representative of the national business sector, Yukki explained that this measure is among the government’s efforts to address the unpredictable external economic landscape in 2025.
This includes potential escalations in the US-China tariff war, intensifying geopolitical conflicts, and the ongoing high-interest-rate environment driven by the Fed.
Ensuring Seamless Market Entry
Great news for the business community in Indonesia—the new 12% VAT hike only targets luxury goods. This means your daily operations and consumer purchasing power remain unaffected.
The government’s decision to limit the VAT increase provides much-needed relief and ensures businesses can keep moving forward without worrying about soaring costs.
This new policy also offers the clarity needed for companies to plan their strategies for 2025, especially regarding operational cost projections.
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Get in touch with us and schedule your free 30-minute consultation with our legal team. You can text us on Whatsapp +62 877-7711-7701 or email us [email protected] . Let’s discuss how we can help you navigate the Indonesian market and build a successful business.
