The second week of December 2024 was a hectic period for both the government and taxpayers. With the impending launch of the Coretax system in January 2025, the government also announced a hike in the Value-Added Tax (VAT) rate to 12% at the start of the new year. This decision has led to numerous adjustments and raised several questions among taxpayers.
To address the turmoil and confusion, the government issued an official statement, numbered KT-03/2024, on December 21, 2024, clarifying the 1% VAT rate adjustment. The official statement, which includes seventeen points, highlights the following:
First, the VAT rate increase from 11% to 12% is mandated by the Law of the Republic of Indonesia Number 7 of 2021 regarding the Harmonization of Tax Regulations. The government and the House of Representatives agreed that this increase would be implemented gradually to minimize its impact on purchasing power, inflation, and economic growth.
Second, essential goods and services will remain exempt from VAT or taxed at a 0% rate. These include necessities as follows:
- Rice, grains, corn, sago, soybeans, salt, meat, eggs, milk, fruits, and vegetables.
- Services such as healthcare, social services, financial and insurance services, education, public transportation, labor services, and rental services for public flats and housing.
- Other items include books, holy books, polio vaccines, affordable housing, flats, electricity, and drinking water.
Third, the VAT rate increase from 11% to 12% applies to all goods and services previously taxed at 11%, except for certain items deemed essential for the public. Fourth, the government asserts that the VAT increase will have a minimal impact on prices, estimating only an additional 0.9% cost for consumers.
Fifth, electronic money and digital wallet transactions are subject to VAT under the Minister of Finance Regulation (Peraturan Menteri Keuangan / PMK) Number 69/PMK.03/2022. However, the tax is based on the service provided, not the top-up value, balance, or purchase transaction value.
Sixth, payment system services provided by Payment System Service Providers (Penyelenggara Jasa Sistem Pembayaran / PJSP) to merchants are also subject to VAT under PMK 69/PMK.03/2022. This means that providing payment system services is not a new tax object. The tax is based on the Merchant Discount Rate (MDR) collected by the service provider from the merchant.
Seventh, subscription fees for digital platforms like Spotify, Zoom, Netflix, and YouTube Premium are subject to Trade Through Electronic System (Perdagangan Melalui Sistem Elektronik / PMSE) VAT, as outlined in PMK 60/PMK.03/2022. Therefore, tax on PMSE VAT is not a new tax object.
Eighth, the government clarified that transactions involving the sale of phone credit, SIM cards, tokens, and vouchers are not new tax objects. These transactions are already taxed under the provisions of PMK Number 6/PMK.03/2021.
Ninth, the government confirmed that sales of music concert tickets and similar events fall under the Certain Goods and Services Tax (Pajak Barang dan Jasa Tertentu / PBJT), administered by local governments as per Law of the Republic of Indonesia Number 1 of 2022 regarding Financial Relations Between Central and Regional Governments. Therefore, these transactions are not subject to VAT.
Tenth, the government reiterated that domestic airline ticket sales, excluding those part of international tickets, are not new VAT objects. This is due to existing regulations under Government Regulation (Peraturan Pemerintah / PP) Number 50 of 1994.
Eleventh, the government stated that the increase in VAT from 11% to 12% is not expected to significantly impact purchasing power, given the current low inflation rate of 1.6%. The impact of increasing VAT from 11% to 12% is 0.2%.
Twelfth, the government cited the previous VAT increase from 10% to 11% in 2022 as evidence that such changes do not cause spikes in prices or erode purchasing power.
Thirteenth, the government has prepared an economic incentive package to protect disadvantaged groups.
Support for Households and Individuals
a. The government will distribute food aid in the form of rice to 16 million beneficiary families. Each family will receive 10 kg of rice per month for two months, specifically in January and February 2025.
b. A 1% VAT borne by the government (Ditanggung Pemerintah / DTP) will be applied to wheat flour, industrial sugar, and Minyakita cooking oil for a year.
c. Households with a power supply of 2200VA or lower will receive a 50% discount on their electricity bills for the first two months of 2025.
d. A VAT DTP discount will be provided for home purchases with a selling price of up to IDR 5 billion for the first IDR 2 billion. This includes a 100% discount from January to June 2025 and a 50% discount from July to December 2025.Support for Workers
Workers who experience layoffs will have improved access to unemployment insurance benefits.Stimulus for Micro, Small, and Medium Enterprises (MSMEs) (amendment to PP 55 of 2022)
a. Individual taxpayers under MSMEs who have been using the 0.5% final income tax rate for seven years, ending in 2024, will have their validity period extended through 2025.
b. For other MSMEs individual taxpayers, the 0.5% rate will remain available for seven years from their initial registration as per PP 55/2022.
c. MSMEs with annual turnovers below IDR 500 million are completely exempted from income tax obligations.Support for Labor-Intensive Industries
a. Workers in labor-intensive industries earning up to IDR 10 million per month will receive incentives under Article 21 income tax DTP.
b. 50% subsidy for employer's liability insurance in labor-intensive industries for six months paid by Employees Social Security System (Badan Penyelenggara Jaminan Sosial Ketenagakerjaan / BPJSTK).
c. Textile companies looking to revitalize machinery will benefit from a 5% interest subsidy on their loans.Stimulus for the Housing Sector
The government has announced VAT DTP discounts for home purchases to stimulate this high-multiplier sector. Homes with selling prices of up to IDR 5 billion will enjoy a 100% discount for the first IDR 2 billion during January–June 2025 and a 50% discount for the same amount during July–December 2025.Incentives for the Automotive Sector
a. Battery Electric Vehicles (BEVs) will receive a 10% VAT DTP, a 15% luxury-goods sales tax DTP for imported CBU and CKD BEVs, and 0% import duty for CBU BEVs.
b. Hybrid vehicles will be given incentives in the form of luxury-goods sales tax DTP of 3%.Fourteenth, the government emphasized that these incentives are designed to complement existing welfare programs. Fifteenth, the planned increase in VAT from 11% to 12% is aimed at bolstering state revenues to fund national development, including education, healthcare, and welfare programs for underprivileged communities.
Sixteenth, the government clarified that there are no current plans to lower the turnover threshold for MSMEs to qualify for the 0.5% income tax rate or to be appointed as taxable entrepreneurs. The threshold remains at IDR 4.8 billion per year, not IDR 3.6 billion.
Seventeenth, the Ministry of Finance is still discussing VAT on premium basic necessities and premium health and education services. Until further regulations are issued, these items will remain VAT-exempt.
This information was part of the government’s recent press release. Stay updated with the latest tax news and articles on Ideatax.
