Compensating for 12 Percent VAT Rate Increase, Government is Finalising Fiscal Incentives in 2025

Tax illustration (photo: Unsplash)

JAKARTA - The government is finalizing fiscal incentives next year as compensation from increasing the value added tax rate (VAT) to 12 percent in 2025.

The incentives in question are the Government-borne Luxury Goods Sales Tax (PPnBM) incentive (DTP) for the purchase of electric cars and VAT DTP for the property sector.

"It is being studied to reduce the impact of ppn 12 percent, we are proposing several fiscal incentive schemes, especially PPN DTP and PPnBM DTP," said Secretary of the Coordinating Ministry for the Economy Susiwijono Moegiarso after the Indonesia SEZ Business Forum 2024 event, Monday, December 9.

However, Susi has not been able to provide detailed information regarding when the technical rules will be issued by the government.

To note, the increase policy is contained in Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP) in Article 7 paragraph (1), the 12 percent VAT rate is valid no later than January 1, 2025, after the increase in VAT rates from 10 percent to 11 percent in April 2022.

Previously, President Prabowo Subianto said that he would continue to increase the VAT rate to 12 percent in 2025, which would be specifically for luxury goods products.

"VAT is a law, yes we will implement it, but selective. Only for luxury goods," he said when giving a press statement, Friday, December 6.