Indonesia to increase VAT on luxury goods to 12%

January 01, 2025 (MLN): Indonesia's President, Prabowo Subianto, announced on Tuesday that the value-added tax (VAT) rate will increase by 1% to 12%, effective January 1, applying only to luxury goods and services.

Prabowo said the decision should end speculation over which items and services would be affected by the VAT increase, as Reuters reported.

The decision also reversed an announcement by finance ministry officials in December. 

Authorities at the time had said the VAT hike would apply across the board, except for cooking oil sold under a government program, sugar for industry, and wheat flour.

These items would still be subject to an 11% VAT rate, Reuters further added.

"Today, the government has decided that the increase of VAT rate from 11% to 12% will apply only to luxury goods and services that are the subject of luxury sales tax", Prabowo said.

These goods and services are consumed by those with higher income, such as private jets, yachts, and luxury homes", he added.

Prabowo said the government will still move forward with planned support measures intended to soften the blow from the VAT hike, worth 38.6 trillion rupiah ($2.40 billion).

These measures include electricity discounts and other tax breaks.

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