The Government of Indonesia Increases Value Added Tax (PPN) Rate to 12% Starting January 1, 2025
The Indonesian government has confirmed that it will implement an increase in the Value Added Tax (PPN) rate from 11% to 12%. This policy will take effect on January 1, 2025, as mandated by Law Number 7 of 2021 on Tax Regulation Harmonization.
Prior to this decision, Minister of Finance Sri Mulyani Indrawati emphasized that the increase in PPN to 12% is in accordance with the Law on Tax Regulation Harmonization. She stated that this decision was not made arbitrarily but after extensive discussions with the Indonesian House of Representatives. The Minister assured that the government will provide clear explanations to the public regarding the background of this policy and its benefits to the state finances.
What is PPN?
Value Added Tax (PPN) is a tax on the consumption of goods and services within the Customs Area, levied in stages in each production and distribution line. PPN is collected by the central government through the Directorate General of Taxation of the Ministry of Finance. It differs from local taxes, such as those imposed on food purchases in restaurants, hospitality services, parking fees, and entertainment venues.
PPN collected by the central government applies to various transactions, including the purchase of motor vehicles, property, and internet services. In English, PPN is known as Value Added Tax (VAT) or Goods and Services Tax (GST) and is considered an indirect tax because it is collected by entities other than the taxpayer. The government collects PPN through businesses selling goods or services, with consumers ultimately bearing the tax burden.
Impact of PPN Increase
The decision to raise the PPN rate to 12% was made to improve the government’s budget, especially following the global pandemic. According to the Faculty of Economics and Business at the University of Indonesia, PPN has consistently been a major contributor to state revenue alongside income tax since 2010. The increase in PPN is expected to boost tax revenue and improve the tax ratio, allowing the government more flexibility in budget allocation for development and welfare programs.
In adjusting the PPN rate, the government has exempted certain essential goods and services to protect purchasing power. This means that basic needs of the population are not affected by the PPN increase. Additionally, the revenue generated from the PPN adjustment will be redistributed to the public through various programs such as direct cash assistance, social welfare programs, and subsidies for essential goods and services.
List of Goods and Services Exempt from 12% PPN
The Law on Tax Regulation Harmonization and Ministerial Regulation No. 116/PMK.010/2017 specify categories of goods and services that are exempt from the 12% PPN rate. These include:
– Food and beverages consumed in hotels, restaurants, eateries, and similar establishments
– Currency, gold bars for reserve purposes, and securities
– Religious services, social services, financial services, insurance services, education services, labor services, artistic and entertainment services, hotel services, government services, parking services, medical services under the national health insurance program, public transportation services, catering services, and more.
Conversely, goods subject to the 12% PPN rate are outlined in Law Number 42 of 2009 on Value Added Tax on Goods and Services and Luxury Goods Sales Tax. These include the supply of taxable goods and services within the customs area, imports, utilization of tangible goods from outside the customs area within the customs area, and exports.
In conclusion, the increase in the PPN rate to 12% is a strategic move by the Indonesian government to strengthen state finances and enhance public services. By ensuring that essential goods and services are exempt from the tax, the government aims to minimize the impact on the general population while maximizing revenue generation for national development.
