Indonesia officially increases VAT rate to 11 percent

Jakarta (Indonesia Window) – The Indonesian government has officially increased the VAT (value added tax) rate from 10 percent to 11 percent starting April 1, 2022, which is regulated in the Law Number 7 of 2021 on Harmonization of Tax Regulations.

“This policy is an integral part of tax reforms and fiscal consolidation as the foundation of a more equitable, optimal and sustainable tax system,” according to the Ministry of Finance’s official statement received here on Friday (Apr. 1).

The Ministry of Finance detailed certain goods and services provided with VAT-free facilities covering basic needs such as rice, grain, corn, sago, soybeans, salt, meat, eggs, milk, fruits, vegetables and consumable sugar.

In addition, health services, education services, social services, insurance services, financial services, public transportation services and labor services are also free from VAT.

Other free-VAT items are vaccines, school textbooks, holy books, clean water which includes installation fees and fixed load costs, as well as electricity, except for households with a power of more than 6600 VA.

Lower-class flats and houses, construction services for houses of worship and construction services for national disasters also get VAT-free facilities.

VAT-free facilities are also provided for machinery, marine fishery products, livestock, seeds, animal feeds, fish feeds, feed ingredients, hides and raw skins and raw materials for silver handicrafts.

Petroleum, natural gas or gas through pipelines, LNG (liquefied natural gas) and CNG (compressed natural gas) as well as geothermal, gold bullion and granulated gold, weapons or defense equipment, and aerial photography are also provided with VAT-free facilities.

Meanwhile, goods and services that are not subject to VAT include goods that are objects of local tax, namely foods and beverages served in hotels, restaurants, food stalls and the like.

The others are services that are objects of local taxation are services for providing parking spaces, arts and entertainment services, hospitality services, and catering or catering services.

Money, gold bars for the purpose of state foreign exchange reserves, securities as well as religious services and services provided by the government are also not subject to VAT.

This VAT rate adjustment was also accompanied by a decrease in the rate of individual income tax (PPh) on income of up to 60 million rupiahs (some 4,175 U.S. dollars) from 15 percent to 5 percent.

The government also exempts taxes for MSMEs (micro-small-and-medium enterprises) players with a turnover of up to 500 million rupiahs (some 34,975 U.S. dollars), and provides final VAT facilities with a certain smaller amount of 1 percent, 2 percent or 3 percent.

“The accelerated VAT refund service of up to 5 billion rupiahs (some 348,000 dollars) is also still being provided,” the Ministry of Finance said.

Reporting by Indonesia Window