The Indonesian governmentalreadyStarting from January 1, 2025, the domestic value-added tax rate will be raised from the current 11% to 12%.

Indonesia's Minister of Economic Affairs, Erlangga2024At the press conference held on December 16th, it was stated that the adjustment of value-added tax is an important component of the government's tax reform, aimed at ensuring a more equitable tax burden and optimizing the country's fiscal revenue. He explained that with the development of the Indonesian economy, the reform of the tax system has become particularly urgent to adapt to the continuous growth of the country's fiscal needs.

However, Minister Elronga also made it clear that basic grains such as rice, meat, fish, eggs, vegetables, and fresh milk, as well as basic goods and services such as education, healthcare, public transportation, low-cost housing, and drinking water, will not be affected by the increase in value-added tax. This means that for most Indonesians, their basic daily needs will be guaranteed and they will not suffer too much impact due to tax adjustments.

However, some specific products are still included in the scope of value-added tax increase. For example, commodities such as wheat flour, industrial sugar, and government branded edible oil will continue to maintain an 11% value-added tax rate, but some high-quality foods and services such as premium rice, Kobe beef, and salmon, as well as premium medical services and international school tuition fees, will be included in the tax list for the first time.

In order to alleviate the economic pressure on low-income families caused by tax adjustments, the Indonesian government has also implemented a series of preferential measures. This includes a 50% reduction in electricity bills for middle-income families in the first two months of 2025, as well as preferential policies that exempt labor-intensive employees with a monthly salary of less than 10 million Indian Rupiah from paying income tax. In addition, the government will continue to exempt value-added tax on some housing and electric vehicles, and extend the preferential period until mid-2025 or the end of next year.

However, since the proposal of this value-added tax increase plan, there have been opposing voices from the Indonesian people and political circles. In the current economic environment, people's purchasing power is weakening, and some manufacturing industries are also facing the problem of massive layoffs. Therefore, many people are concerned that tax adjustments will further exacerbate economic difficulties and have a greater impact on the middle class.

In response, the Director of Indonesia's Fiscal Policy Bureau, Fabrio, stated that although tax adjustments may bring some economic pressure, the government is confident in maintaining the target of a budget deficit of 2.53% of GDP. Finance Minister Mu Yanni also emphasized that maintaining the health and stability of the national budget is crucial, and it should be the source of problem-solving rather than the source of crisis.