Indonesia announces economic policy package to ease VAT hike impact

JAKARTA : Indonesia on Monday (Dec 16) announced economic measures to soften the blow of an increase in the value-added tax (VAT) rate, including electricity tariff cuts, incentives for labour-intensive industries, and VAT exemption on some property sales.

Local news agency Jakarta Globe reported that the economic stimulus package amounting to 827 trillion rupiah (US$51.5 billion), is said to address the weakening purchasing power of low- and middle income groups, while cushioning the impact of the VAT increase. 

“This comprehensive stimulus package is designed to protect the economy, safeguard the most vulnerable groups and foster long-term sustainable growth,” finance minister Sri Mulyani Indrawati told the media on Monday, as quoted by the Jakarta Globe. 

The government had said it would increase VAT to 12 per cent from the current 11 per cent in January 2025, applicable to certain goods and services, including premium quality rice, meat and fish, and international schools and some hospitals.

It will exempt from VAT certain staple foods, while cheap cooking oil provided by the government and sugar for industry will not be subjected to the increased rate, senior economic minister Airlangga Hartarto told a press conference on Monday.

Fiscal incentives will also be offered to the property and automotive sectors, he said.

For middle-income households, the government would reduce the electricity tariff by 50 per cent.

The government also said it will not collect income tax from employees in labour-intensive industries whose monthly salaries are below 10 million rupiah (US$624.61).

The government would also extend tax incentives for electric vehicles and give new tax incentives for hybrid EVs.

Meanwhile, in the housing sector, the government would extend VAT exemptions for house purchases.

“The housing sector not only meets the public’s basic needs but also has a significant multiplier effect, creating jobs and stimulating economic growth,” Sri Mulyani was quoted as saying by the Jakarta Globe.