This aerial picture shows commercial and residential buildings as the sun sets in Jakarta, Indonesia, on Feb. 10, 2024. Photo by AFP
Indonesia has officially implemented a 12% value added tax (VAT) on luxury goods and services starting on Jan. 1, a 1 percentage point increase from the previous rate.
The VAT hike does not apply to essential goods, thus having minimal impact on the daily lives of the general public.
Items subject to the 12% VAT include private jets, luxury yachts, cruise ships, luxury homes, and other goods classified as luxury items.
Meanwhile, basic goods and services such as rice, meat, fish, eggs, vegetables, fresh milk, along with essential services like education, health care, public transport, and basic housing, remain exempt from VAT, with a 0% tax rate applied.
This policy partly reverses a previous announcement of the Indonesian Government that caused a sharp rise in consumer prices, leading to social “panic” amid the growing cost-of-living crisis.
The Indonesian Government has also introduced several measures to alleviate the burden on consumers, including providing rice assistance to poor households and reducing electricity bills by 50% for many families. All of these initiatives will be rolled out in January and February 2025. Other measures include partial VAT exemptions for the purchase of electric vehicles, hybrid cars, and housing.
Speaking at an online press conference in Jakarta on December 31, Indonesian President Prabowo Subianto stated that the country will implement an economic stimulus package to ensure that the VAT increase does not significantly affect the purchasing power of the public.
By increasing VAT, Indonesia aims to stimulate the economy, particularly in sectors such as manufacturing, trade, digital industries, and even the informal economy.
