Indonesia Rolls Out USD 51.65 Bn Stimulus Package Ahead of VAT Increase

18 Dec 2024

Business News
Economy
Taxation

The Indonesian government has unveiled an economic stimulus package worth IDR 827 trillion (USD 51.65 billion) to ease the impact of the VAT increase from 11% to 12%, set to take effect on January 1, 2025. The measures aim to protect low- and middle-income groups while maintaining economic stability. 

 

Finance Minister Sri Mulyani Indrawati emphasized the importance of shielding vulnerable groups from the effects of the VAT hike.  

 

“The government and the House of Representatives have decided not to impose VAT on essential commodities needed by the public. The cost of this policy is estimated at 265.6 trillion rupiah,” Sri Mulyani said during a press conference on Monday.  

 

Essential items such as rice, meat, eggs, and milk will remain VAT-exempt, while goods like premium Wagyu beef and high-end healthcare services will be subject to the new 12% rate. 

 

In addition, Coordinating Minister for Economic Affairs Airlangga Hartarto announced measures to soften the impact on middle-income households, including a 50% electricity tariff discount for users with up to 2200 VA capacity for two months.  

 

Tax exemptions on property purchases of up to IDR 5 billion have also been extended, with full relief available through June 2025, followed by a 50% exemption through the end of 2025. 

 

To support economic growth, the government allocated IDR 394 trillion for energy subsidies and IDR 38 trillion for microloan interest subsidies. These measures include an extension of the 0.5% final income tax rate for MSMEs through 2025. Businesses earning under IDR 500 million annually will continue to be exempt from income tax. 

 

The automotive sector will also benefit, with substantial tax breaks for electric and hybrid vehicles. “The 12% VAT is imposed on luxury goods and services consumed by people who can afford those,” Sri Mulyani said.  

 

Additionally, companies like Citroen and China’s BYD that have committed to establishing EV plants in Indonesia will receive import duty exemptions and tax incentives. 

 

The stimulus package includes IDR 129 trillion for social aid programs such as food aid and health insurance subsidies, ensuring continued support for low-income households.  

 

“This comprehensive stimulus package is designed to protect the economy, safeguard the most vulnerable groups, and foster long-term, sustainable growth,” Sri Mulyani concluded.