Indonesia’s Economic Stimulus in 2025 aims to reduce inflationary pressures and jumpstart the country’s economic recovery. A key part of this strategy is the VAT exemption, which will help lower costs for consumers and businesses.
By removing VAT on essential goods and services, the government hopes to ease financial burdens, boost purchasing power, and encourage spending. This measure is part of a broader effort to stabilize the economy and promote sustainable growth in the coming year.
Indonesia’s Economic Recovery: VAT Exemption Key to Stimulus
Indonesia’s government is rolling out several targeted measures as part of its economic stimulus plan for 2025, with the VAT exemption being one of the central strategies. As Finance Minister Sri Mulyani noted in a press conference on December 16, 2024, reported by Bisnis.com. “The State Budget is implementing various policy packages to maintain people’s purchasing power, welfare, and economic stimulus so that our economy can continue to function.” To support this goal, the government has introduced the following incentives:
- Rice, meat, eggs, vegetables, fruits, salt, and sugar for consumption remain at 0% VAT (exempt from VAT).
- Education services, healthcare services, and public transportation services remain at 0% VAT (exempt from VAT).
- “Minyak Kita” (branded cooking oil), wheat flour, and industrial sugar will remain at 11% VAT, with 1% covered by the government.
- The 0.5% Final Income Tax is extended until 2025.
- Income Tax Article 21 states that employees earning up to IDR 10 million per month are covered by the government for labor-intensive industries.
- A 50% discount on electricity bills for customers with up to 2,200 VA capacity from January to February 2025.
- Food assistance (rice) of 10 kg per family for 16 million households from January to February 2025.
- A 100% VAT discount on home purchases valued up to IDR 5 billion, for the portion priced up to IDR 2 billion, from January to June 2025.
- Workers who are laid off will have easier access to the Job Loss Benefits.
VAT Exemption: What Does It Mean for Consumers and Businesses?
The VAT exemption policy is designed to offer direct relief to both consumers and businesses. For consumers, this means lower prices on everyday essentials, from food staples like rice and vegetables to public services such as transportation and healthcare.
By reducing the tax burden on these goods and services, the government aims to increase purchasing power, making it easier for families to manage their expenses. On the business side, the VAT exemption helps companies by lowering operational costs.
This is especially beneficial for industries hit hardest by economic slowdowns, such as retail and manufacturing. As a result, businesses can reinvest savings into growth or offer more competitive pricing, which in turn helps stimulate consumer demand and drive economic recovery.
The Broader Impact of Indonesia’s Economic Stimulus
Beyond just the VAT exemption, Indonesia’s economic stimulus is designed to address a wide range of challenges facing the economy. By extending tax relief and offering subsidies, the government is working to reduce the impact of rising costs and boost economic activity.
For example, the 50% electricity discount for households with a 2,200 VA capacity aims to ease the financial strain on lower-income families. Meanwhile, the food assistance program, providing 10 kg of rice per family, targets the most vulnerable populations, ensuring they can meet basic needs.
Additionally, the extension of the 0.5% Final Income Tax for labor-intensive industries will help companies retain workers and continue operations despite ongoing economic pressures. These measures are part of a broader strategy to maintain social welfare, protect jobs, and promote sustainable economic growth.
Looking Ahead: VAT Increase and Long-Term Economic Strategy
While the current VAT exemption policy provides immediate relief, the government has also laid out a plan for future tax adjustments.
The projection of the VAT exemption aligns with the government’s decision to raise the VAT rate to 12% starting January 1, 2025, under Law No. 7 of 2021 on the Harmonization of Tax Regulations.
This planned increase reflects Indonesia’s broader fiscal strategy to ensure sustainable revenue growth while managing inflation and supporting economic recovery. It’s clear that while immediate measures like the VAT exemption offer relief, the government is also preparing for a gradual transition to a more stable tax structure in the coming years.
Source: bisnis.com, antaranews.com
Image: Dok. Kemenkeu
