Indonesian Finance Minister Sri Mulyani Indrawati has confirmed that, despite calls to abandon or postpone a new tax policy, the Value-Added-Tax (VAT) rate will increase to 12%, effective 01 January 2025.
Minister Mulyani confirmed the accelerated introduction of the tax increase in a press conference held on 23 September 2024 and reported by the State News Agency Antara.
Responding to widespread calls to postpone any tax hike during the early days of Prabowo Subianto’s Presidency, Sri Mulyani insists that the condition of the state budget does not allow a postponement.
Despite mounting calls for a delay in any tax hike, Sri Mulyani informed lawmakers that the current state budget and fiscal conditions do not support a postponement. In the opinion of the Finance Minister, Indonesia needs to increase state revenue to sustain the post-pandemic economic recovery.
Speaking before the Indonesian House of Representatives Commission XI in Jakarta, Sri Mulyani said: “Tax policies, including the new VAT, have been carefully designed, taking into account the health sector and the basic needs of the people.”
Initially, plans were to gradually increase the VAT rate to 11% in April, with a further 1% increase later in 2025. The latest announcement by the Finance Minister will see the 20% increase in VAT to 12% be implemented on 01 January 2025.
In Indonesia, value-added tax (VAT) applies to providing services or transferring taxable goods. Businesses must register for VAT once they reach an annual revenue of 4.8 billion rupiah (US$321,677). Many companies, however, voluntarily register for VAT even if earning lower yearly revenues than the base amount.
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