Sri Mulyani Says VAT Rates in Indonesia Are Still Low

JAKARTA - The government has officially implemented a 12 percent increase in the Value Added Tax (VAT) rate on January 1, 2025.

Indonesian Finance Minister Sri Mulyani Indrawati explained that the current VAT rate of 11 percent is still relatively low when compared to other countries, both in the regional area and G20 members.

"The VAT rate in Indonesia compared to many countries in the world is still relatively low. If we look at both emerging countries or countries in the region, as well as in the G20," she said in a press conference on the Economic Stimulus Package for Welfare, Monday, December 16.

Sri Mulyani said that several countries with similar economies have higher VAT rates and tax ratios or ax ratios than Indonesia.

The state treasurer gave examples, Brazil which applies a VAT rate of 17 percent with a tax ratio reaching 24.67 percent, South Africa sets a VAT rate of 15 percent with a tax ratio of 21.4 percent, and India applies a VAT rate of 18 percent with a tax ratio of 17.3 percent.

"Then Turkey has 20 percent VAT with a tax ratio of 16 percent. (VAT) 12 percent is in the Philippines with their tax ratio already at 15.6 percent. And Mexico has a VAT of 16 percent, their tax ratio is at 14.46 percent," she explained.

However, Sri Mulyani continued, Indonesia's current VAT rate is still relatively higher compared to countries in the ASEAN region, namely Malaysia's VAT rate of 10 percent, and Vietnam applies VAT rate of 8 percent.

Then Singapore's VAT rate is 9 percent, and Thailand's VAT rate is 7 percent.

According to her, the increase in VAT rates was carried out by considering various factors, including maintaining people's purchasing power and economic stability.

Sri Mulyani also said that Indonesia still has homework to do to increase tax revenues without burdening public consumption excessively.

"We understand the views of various parties. We also see data on household consumption in our neighbors which remains stable. Then inflation has decreased and is even relatively low at 1.5 (percent)," she explained.

Therefore, Sri Mulyani emphasized that the 12 percent VAT policy will be implemented carefully, while still paying attention to stable household consumption, decreasing inflation, and people's purchasing power.

On the same occasion, Coordinating Minister for the Economy Airlangga Hartarto conveyed that in accordance with the mandate of the Law on Harmonization of Tax Regulations (UU HPP) according to the predetermined schedule, the VAT rate will increase by 12 percent as of January 1, 2025.

"Next year's VAT will increase by 12 percent as of January 1, but goods needed by the community will be given facilities or 0 percent VAT," he said in a press conference on the Economic Stimulus Package for Welfare, Monday, December 16.

Airlangga said that the group of goods exempted from VAT are basic necessities such as rice, meat, eggs, fish, and milk.

Likewise with education, health, finances, labor, insurance, and water services.

Airlangga emphasized that in maintaining people's purchasing power, the government will continue to provide economic policy stimulus for low-income households, namely the VAT rate will be borne by the government at 1 percent for basic necessities so that it will still be charged at 11 percent.

Meanwhile, basic goods that will be subject to a VAT rate of 11 percent are cooking oil with Minyakita packaging, wheat flour, and industrial sugar.

"MinyaKita, previously bulk oil, was given 1 percent assistance, so it did not increase to 12 percent. Then wheat flour and industrial sugar, so each of these was given 1 percent, 1 percent of which was borne by the government," he said.

Airlangga said that this stimulus was given to maintain people's purchasing power, especially for basic needs, specifically industrial sugar which supports the food and beverage processing industry which plays a fairly high role.

Airlangga added that there will also be food and rice assistance for deciles one and two of 10 kg per month, as well as assistance for electricity installed below or up to 2,200-volt ampere, a 50 percent discount will be given for 2 months.