Indonesia has announced an increase in its value-added tax (VAT) rate from 11% to 12%, effective January 1, 2025. This increase applies exclusively to luxury goods and services, as clarified by Indonesian President Prabowo Subianto during a New Year's Eve press conference in Jakarta.
The VAT increment will only affect items classified under the Sales Tax on Luxury Goods (StoLG) category, including high-value items like private jets, yachts, and luxurious properties. Non-luxury goods and services will maintain the existing 11% VAT rate.
President Prabowo emphasized that essential goods and services will remain exempt from VAT. Staple foods, public transportation, medical services, and financial products are among the items that will continue to be VAT-free.
Finance Minister Sri Mulyani Indrawati elaborated on the policy, ensuring that the government is committed to protecting essential goods and services from additional taxation. Services such as ferry transportation, train tickets, and health services will also remain exempt.
The hospitality industry expressed concerns regarding the VAT hike, with the Indonesian Hotel and Restaurant Association (IHRA) warning that it could disproportionately impact hotels serving middle- and lower-class consumers. IHRA Secretary General Maulana Yusran stated that the increased VAT rates could escalate operational costs.
Despite these concerns, the overall outlook for Indonesia's tourism sector remains positive, with minimal direct impacts expected from the VAT increase. Luxury tourism providers may face higher costs, but the government’s targeted approach aims to balance fiscal needs with economic stability.
Economists view the VAT increase as a necessary measure to improve Indonesia's fiscal health, with revenue expected to fund public projects and infrastructure development.