JAKARTA (Reuters) – Indonesian President Prabowo Subianto has agreed to raise value-added tax by one percentage point to 12% next year, but only on luxury goods, Sufmi Dasco Ahmad, deputy speaker of parliament, told reporters on Friday.
Starting Jan. 1, 2025, VAT will rise to 12% from 11% currently. There has been public pressure to delay the hike as it could hurt purchasing power.
The higher VAT rate will only be imposed on luxury goods while other goods will remain at 11%, and some, such as staple items, will still be exempt, the deputy speaker said.
“In this current economic situation, we all know that we could not impose the new rate to all goods, so we find the middle-ground solution with the government,” Dasco said.
The government will specify later which goods will fall into each VAT category, he said after a meeting with deputy finance ministers.
Parliament had proposed the items subject to higher VAT would be similar to those already subject to luxury sales tax, which is imposed on certain houses, cars, airplanes and yachts, but Dasco said the government was reviewing this.
Almost all products and services are currently subject to VAT, except for staple foods and some items and services related to education and health.
Jakarta has said the VAT hike is needed to improve the structural health of the budget and has planned fiscal stimulus alongside the new rate.
The deputy speaker also said the parliament and the government would make sure that despite only introducing a selective VAT hike, the state revenue target next year would still be achieved as other ways of collection were being considered.
During his election campaign, Prabowo said he wanted to boost tax revenue to 18% of gross domestic product from around 10% currently, adding about $100 billion in additional tax revenue.
Indonesia’s presidential office did not immediately respond to a request for comment and the finance ministry declined to comment.
(Reporting by Stefanno Sulaiman, Fransiska Nangoy; Editing by Kevin Liffey)
