Indonesia’s Minister of Finance, Sri Mulyani Indrawati, ensures that the increase in the value-added tax (VAT) rate from the previous 11% to 12% on January 1, 2025, will be implemented. What goods are affected and unaffected by this VAT hike?
Keeping State Budget Healthy
Indonesia’s Ministry of Finance is continuing its efforts to boost tax revenue by maintaining the increase in the Value Added Tax (VAT) starting January 1, 2025.
The increase in the VAT rate is by the provisions of Article 7 paragraph (1) letter b of Law No. 7 of 2021 concerning the Harmonization of Tax Regulations. According to this regulation, the VAT is increased gradually, to 11 percent on April 1, 2022, and 12 percent on January 1, 2025.
Minister Sri Mulyani explained that the tax policy, including the VAT increase, is aimed at maintaining the health of the State Budget to be prepared for various economic crises, such as the global financial crisis and the pandemic, which require a quick and effective fiscal response.
“The state budget must indeed be maintained in a healthy condition, but at the same time, the state budget must function and be able to respond in episodes of global financial crises,” said Minister Sri Mulyani during a meeting with the national parliament on Wednesday, November 13, 2024. “For example, during the global financial crisis and the pandemic, we used the state budget,” the minister added as reported by AntaraNews.
VAT Increase Considers Sensitive Sectors
Finance Minister Sri Mulyani Indrawati has confirmed that the increase in the value-added tax (VAT) aligns with the nation’s fiscal and budgetary needs, considering the ongoing recovery from the COVID-19 pandemic.
Sri Mulyani highlighted that this VAT adjustment considers sensitive sectors, including health and essential commodities.
“Tax policies, including VAT adjustments, are carefully planned to consider various sectors, such as health and basic needs,” she said during a working session with the DPR’s Commission XI on November 14, 2024, as reported by AntaraNews.
Recently, concerns over weakening consumer purchasing power have led some to call for a reevaluation of this VAT hike.
While ministers in the previous cabinet entrusted the VAT adjustment to the current administration, the decision remains under active review amidst these considerations.
Items Impacted and Unaffected by the VAT Increase
According to Article 4A of the Harmonization of Tax Regulations (HPP), specific types of goods and services are exempt from VAT, include:
- Food and beverages provided by hotels, restaurants, cafes, stalls, and similar establishments. This includes both on-site and takeaway items, as well as catering services, which fall under local tax and levy regulations.
- Money, gold bullion used for foreign exchange reserves, and securities.
Exempted services from VAT include certain categories of services, including:
- Religious services.
- Arts and entertainment services, covering all services provided by artists and entertainers, which are also subject to local taxes and levies.
- Hotel services, such as room rentals within hotels, which are governed by local tax regulations.
- Government-provided services related to public administration tasks that only government bodies, based on their legal authority, can perform and that cannot be fulfilled by private entities.
- Parking space services, including all services for providing or managing parking areas by owners or parking management businesses, which fall under local tax and levy regulations.
- Catering services, covering all activities related to the provision of food and beverages, also subject to local taxes and levies as per applicable laws.
- Additionally, certain types of goods and services may be exempt from VAT for national development purposes. These include:
- Essential goods required by the general public.
- Healthcare services, including specific medical services and those under the National Health Insurance (JKN) program.
- Social services.
- Financial and insurance services.
- Educational services.
- Public transportation services, covering land, water, and domestic air transport linked to international transportation.
- Labor services.
Meanwhile, list of goods and services subject to VAT under Law Number 42 of 2009, which amends Law Number 8 of 1983 regarding Value Added Tax (VAT) on Goods and Services and Luxury Goods Tax, VAT is applied to:
- Delivery of taxable goods within the customs area by businesses.
- Import of taxable goods.
- Delivery of taxable services within the customs area by businesses.
- Utilization of intangible taxable goods from outside the customs area within the customs area.
- Utilization of taxable services from outside the customs area within the customs area.
- Exports of tangible taxable goods by taxable businesses.
- Exports of intangible taxable goods by taxable businesses.
- Exports of taxable services by taxable businesses.
Examples of goods subject to VAT include bags, clothing, shoes, automotive products, electronic devices, telecommunications credits, tools, beauty products, and cosmetics. Additionally, music and film streaming services, such as Spotify and Netflix, are also subject to VAT as reported by Tempo.
Source: Antara, BeritaSatu, Tempo
Image source: vecteezy.com
