Indonesian Value-Added Tax (VAT) Rate Increases to 12% in 2025

KONTAN.CO.ID-JAKARTA The government has confirmed that the value-added tax (VAT) rate of 11% will remain in effect this year.

However, Law Number 7 of 2021 on Tax Regulation Harmonization (UU HPP) has mandated an increase in the VAT rate to 12% no later than January 1, 2025.

Nevertheless, the government can still postpone the increase in the VAT rate to 12% with certain considerations. Referring to Article 7 paragraph (3), the VAT rate can be changed to a minimum of 5% and a maximum of 15%.

"Based on economic considerations and/or the need for increased funds for development, the VAT rate can be changed to a minimum of 5% and a maximum of 15%," reads the explanatory paragraph of Article 7 paragraph (3) of the law, quoted on Sunday (28/1).

Senior Analyst of the Indonesia Strategic and Economic Action Institution, Ronny P Sasmita, said that the government still has one year left to implement the VAT rate. He hopes that in this remaining time, the government can encourage businesses to be ready to pay a VAT of 12% in 2025.

"The government has another year to fight so that our business world can enter 2025 with enough ability to pay 12% VAT," Ronny told Kontan.co.id, Sunday (28/1).

He believes that the government does not need to revise or lower the VAT rate in 2025. This is because if the VAT rate is reduced to 10%, the mandate of the UU HPP to raise the rate to 12% will be even more difficult to achieve. Ultimately, the calculation of state revenue from VAT will also change.

"This means there will be a decrease in income that results in a decrease in the government's fiscal capacity to support national economic growth with increased government spending," he said.

Meanwhile, Economist of the Center of Reform on Economic (Core) Yusuf Rendy Manilet hopes that Indonesia's economic growth in 2025 can reach 5.5% to 6%. With this growth, efforts to dig up receipts from various tax posts can be done by the government.

However, with the economic conditions of 2025 still quite challenging, adjustments to the VAT rate need to be made. For example, if the government wants to raise the tax rate in a certain sector, it must be ensured that the sector has grown double digits and is relatively better in the last three years.

Conversely, sectors that have not yet recovered can get fairer tax treatment so that these sectors have time to catch up with growth.

"So they can have room to improve their performance without being burdened by large and unfair taxes for them. So the option of a tax rate range (VAT) of 5% to 15% is relatively fair for determining VAT in 2025," said Yusuf.