Anticipating 2025: The 12% VAT Policy and Its Implications for Society and Businesses

To establish a more comprehensive and harmonized tax system, the Indonesian government has introduced various measures under Law No. 7 of 2021 on the Harmonization of Tax Regulations (UU HPP).

One of the key provisions in this law is the implementation of a 12% Value Added Tax (VAT) rate, set to take effect on January 1, 2025. The policy aims to enhance state revenue while fostering inclusive and equitable development.

However, the government continues to review the policy to ensure its implementation does not overly burden the public and supports sustainable economic growth.

Key Takeaways

1. 12% VAT Implementation in 2025: Starting January 1, 2025, Indonesia will increase the VAT rate to 12% under the Harmonization of Tax Regulations Law (UU HPP) to enhance state revenue and support equitable development.
2. Scope of VAT: VAT applies to taxable goods (BKP) and services (JKP), including imports, exports, self-construction, and the use of intangible goods and services from abroad.
3. Exemptions from VAT: Essential goods like food and beverages, religious services, hotel services, and government administrative functions are exempt from VAT to protect public needs and reduce tax burdens.
4. Impact on the Public and Businesses: The VAT increase will affect household consumption and business operations, requiring adjustments in budget management and compliance with updated regulations.
5. How Businesses Can Prepare: Businesses need to ensure their tax administration complies with new regulations, update accounting systems, and transparently communicate price changes to consumers.
6. Permitindo’s VAT Services: Permitindo offers expert accounting and tax services to help businesses navigate the complexities of VAT compliance, ensuring smooth operations and regulatory adherence.
7. Government Commitment: Continuous reviews are being conducted to balance the country’s fiscal needs with public purchasing power, ensuring the policy supports sustainable economic growth.

What is Subject to VAT?

Value Added Tax (VAT) is a tax on the consumption of goods and services within the Indonesian Customs Area. VAT applies to various economic activities involving Taxable Goods (BKP) and Taxable Services (JKP), as outlined in Article 4 paragraph (1) of Law No. 42 of 2009:

1. Delivery of Taxable Goods (BKP) in the Customs Area by Entrepreneurs

Includes:

• Transfer of rights over BKP through agreements or leasing.
• Deliveries to intermediaries or through auctioneers.
• Self-use or gratuitous delivery.
• Transfers between head offices and branches.

2. Import of Taxable Goods (BKP)

All imports of BKP into Indonesia are subject to VAT.

3. Delivery of Taxable Services (JKP) in the Customs Area by Entrepreneurs

Covers service activities such as enabling the use of goods, facilities, or rights and services requested based on client specifications.

4. Use of Intangible BKP and JKP from Outside Indonesia

For example:

• Use of patents or licenses from abroad.
• Consulting services provided by foreign companies to Indonesian entities.

5. Export Activities by VAT-Registered Entrepreneurs (PKP)

• Export of tangible goods at a 0% VAT rate.
• Export of intangible goods such as software or copyrights.
• Export of services like consulting provided to foreign clients.

6. Additional Applications of VAT

• Self-Construction Activities: For personal or non-business construction projects.
• Transfer of Non-Tradable Assets: Includes the transfer of assets not intended for sale, with some exceptions.

Goods and Services Exempt from VAT

To protect essential needs and reduce tax burdens, certain goods and services are exempt from VAT:

Goods Exempt from VAT

• Food and beverages served in hotels, restaurants, or catering services.
• Currency, gold bullion for reserves, and securities.

Services Exempt from VAT

• Religious services (e.g., places of worship).
• Arts and entertainment services already subject to local taxes.
• Hotel services, including room and space rentals.
• Government-provided general administrative services.
• Parking services.
• Catering services subject to regional taxes.

How to Prepare for the VAT Changes

The VAT increase will impact household consumption and business operations. Proactive preparation is essential:

For the Public

• Understand which goods and services are taxable and which are exempt, especially basic necessities.
• Adjust household budgets to accommodate potential price increases.

For Businesses

• Ensure compliance with updated tax regulations, including proper VAT calculations.
• Upgrade accounting and tax reporting systems to align with the new rate.
• Communicate transparently with consumers about the VAT increase and its implications.

To help businesses navigate the complexities of VAT compliance, Permitindo offers expert accounting and tax services tailored to ensure your business stays ahead of regulatory changes. From updating your tax administration to streamlining VAT reporting, Permitindo’s team can simplify the process and allow you to focus on growing your business. Learn more about how we can assist you here.

The Government’s Commitment to Policy Review

The government aims to balance fiscal needs with the purchasing power of the public. Continuous evaluations are being conducted to ensure the policy’s implementation aligns with societal and economic interests.

Conclusion

The 12% VAT policy seeks to boost state revenue and support sustainable development, but its success depends on inclusive and thoughtful implementation.

By preparing proactively, businesses and individuals can mitigate the impact of these changes. How will you adapt to ensure compliance and stay ahead in this dynamic environment?