Starting January 1, 2025, the Value-Added Tax (VAT) rate increased from 11% to 12%, as stipulated in Article 7 Section (1) of the VAT Law, amended by the Harmonization of Tax Regulations Law.
Initially, in a previous press release (KT-03/2024), this hike was set to apply to all goods and services previously taxed at 11%, except for essential items needed by the general public like bulk cooking oil, wheat flour, and industrial sugar.
This decision sparked public outcry. Many citizens feared the increase would disproportionately affect the lower middle class, adding to their financial burdens. Additionally, there were concerns that the higher VAT rate could hinder economic growth, especially amid global economic uncertainty.
Responding to these concerns, the government announced a policy package on December 31, 2024. In a public address, President Prabowo Subianto declared that the VAT hike to 12% would only apply to luxury goods. There will be no increase in the rate of goods that have been subject to VAT of 11%.
This policy shift was detailed in the Minister of Finance Regulation (Peraturan Menteri Keuangan / PMK) Number 131 of 2024, which outlines VAT treatment on various transactions, including imports and deliveries of taxable goods and services.
Under these provisions, the import and delivery of taxable items classified as luxury goods within the customs area will be taxed at 12%. The luxury goods referred to in these provisions are motor vehicles and goods other than motor vehicles which are subject to luxury-goods sales tax.
Under these provisions, VAT on taxable goods and services—other than luxury goods as outlined in PMK 131—will be set at 12%, but with a different tax base calculation. For non-luxury taxable goods and services, the tax base is determined by multiplying the selling price by a factor of 11/12. This adjustment ensures that despite the increase in VAT to 12%, the actual amount of VAT paid on imports or sales of these goods and services remains unchanged.
For example, in December 2024, PT A sold goods for Rp10,000,000. At the then-applicable VAT rateof 11%, the VAT collected was Rp1,100,000. In January 2025, PT A sold similar goods at the same price, but under the new provisions (12% VAT with a tax base factor of 11/12), the VAT collected remained Rp1,100,000. This is calculated by multiplying the selling price of Rp10,000,000 by 11/12, then applying the 12% VAT rate.
Input tax credits for taxable goods and services under these provisions can still be claimed according to applicable laws and regulations. However, the provisions also include exemptions. Taxable entrepreneurs who calculate and pay VAT using alternative tax bases, such as other values or certain rates, are not subject to the 12% VAT rate under PMK 131 of 2024.
For example, in January 2025, a logistics company provided expedition services amounting to Rp10,000,000. As stipulated in PMK 75/PMK.03/2010 (last amended by PMK 71/PMK.03/2022) logistics companies providing expedition services use other values as the tax base equivalent to 10% of the transaction value. Since the logistics company charged Rp10,000,000 for services in January 2025, the VAT collected would still amount to Rp1,100,000 (10% of the transaction value, multiplied by the VAT rate of 11%).
Starting January 1, 2025, the VAT rate for goods and services using a tax base multiplier of 11/12 has been implemented. Additionally, the VAT rate for luxury goods, as specified in Article 2 Section (2) of PMK 131 of 2024, will come into effect on February 1, 2025.
Relevant Provisions:
Law of the Republic of Indonesia Number 8 of 1983 regarding Value-Added Tax and Luxury-Goods Sales Tax as amended by Law of the Republic of Indonesia Number 7 of 2021 regarding Harmonization of Tax Regulations.
PMK Number 131 of 2024 regarding VAT Treatment on Imports of Taxable Goods, Delivery of Taxable Goods and Services, and Utilization of Intangible Taxable Goods and Services from Outside the Customs Area within the Customs Area.
PMK Number 75/PMK.03/2010 regarding Other Values as the Tax Base as amended by PMK 71/PMK.03/2022.
