Govt. Walks Back Sweeping VAT Hike on Last Day of the Year  

 

President Prabowo Subianto and Finance Minister Sri Mulyani Indrawati jointly announce that the VAT hike from 11% to 12% would only apply to luxury goods and services. 
 

In an unexpected turn of events, the government has decided to walk back its sweeping plan to hike the value-added tax (VAT) mere hours before the controversial policy was to take effect at the turn of the year on Jan. 1, 2025.  

 

Instead, President Prabowo Subianto and Finance Minister Sri Mulyani Indrawati on Tuesday announced that the VAT hike from 11 percent to 12 percent would only apply to luxury goods and services.  

 

Such luxury items include private jets, cruise ships, yachts and properties priced at IDR 30 billion (USD1.85 million) or higher. The purchase of luxury cars and motorcycles will also be impacted.  

 

"Today, the government has decided that the VAT rate hike from 11 percent to 12 percent will only be applied to luxury goods and services that are already subject to luxury sales tax and are consumed by high income earners,” Prabowo told reporters in a briefing at the ministry’s office. 

 

“All other goods and services already applied with the 11 percent VAT will see no change in VAT rate,” Sri Mulyani said in the same briefing.  

The decision partially reversed a government announcement on Dec. 16 that jolted consumer prices and triggered wide panic amid a growing cost of living crisis. Officials at the time said the government would proceed with a plan to raise the VAT to 12 percent across the board starting Jan. 1, 2025, noting exceptions for industrial sugar, wheat flour and affordable cooking oil sold in government programs.  

 

The hike was stipulated in Law No. 7/2021 on Tax Harmonization, which mandated increasing the VAT rate from 10 to 11 percent on April 1, 2022, followed by a subsequent increase to 12 percent on Jan. 1, 2025.  

 

In that same announcement, the government also offered multiple incentives aimed at softening the blow for consumers which included rice disbursements for poor households and a 50 percent electricity bill discount for households connected to the power grid using up to 2,200 volt-amperes.  

 

All such initiatives are to be implemented in January and February 2025. Other measures also include a partial tax waiver for purchases on electric vehicles, hybrid vehicles and houses. 

 

Even with the abrupt policy U-turn, both the President and his finance minister have reassured that the targeted subsidy schemes would remain in effect in 2025.  

 

Sri Mulyani also assured that certain key food staples, such as rice, beef, fish and vegetables, would remain exempt from the VAT entirely.  

 

Moreover, other goods and services that have not been subject to the VAT would remain that way, the minister added, including public transportation, financial services, education and healthcare services.  

 

In the past few days leading up to New Year's Eve, thousands of people have staged separate rallies across several cities nationwide, demanding that the government scrap the VAT hike over concerns of weakening spending power trending among consumers. 

 

Since November, businesses have also asked the government to postpone the VAT hike, arguing it could put serious pressure on people’s spending power, which they say would in turn slow economic growth. 

 

Mukhamad Misbakhun, who chairs House of Representatives’ Commission XI overseeing finance and state budget hailed the move, noting it would avoid additional burdens to the general public.  

 

He said in a statement on Tuesday that limiting the VAT hike to luxury goods and services was expected to allow the government to reap only IDR 3.2 trillion in additional tax revenue in 2025, while forgoing an estimated IDR 75 trillion in potential extra tax collection if it applied the policy across the board.  

 

“This is a tough decision for President Prabowo’s administration,” Misbakhun said.  

 

Since being sworn in on Oct. 20, Prabowo's administration has laid out a bevy of ambitious programs that, while largely popular and based on winning campaign promises, require massive state funding.  

 

The President has also considered the idea of increasing Indonesia’s tax base to grow state revenues and meet its budgetary demands for development.  

 

Previously, on Dec. 5, lawmakers proposed that the increased VAT rate should initially be applied to certain luxury products when it kicks in on Jan. 1, after which it could be rolled out to all other goods.  

 

The latest decision announced on Tuesday was in line with suggestions from lawmakers, but it remains to be seen whether the state would ultimately refrain from applying the VAT hike to other goods and services. 

 

Source: The Jakarta Post 

China’s Xpeng to Enter Indonesian EV Market This Year

 

Chinese automaker Xpeng is set to make a debut in the Indonesian market this year as the Southeast Asian country tries to boost its electric vehicle (EV) adoption. 

 

The company has signed a distribution deal with local company Sinar Eka Selaras (ERAL), a subsidiary of the handset distributor Erajaya Swasembada (ERAA). Xpeng has partnered with ERAL’s subsidiary Era Inovasi Otomotif (EIO) as its official distribution partner in Indonesia. This makes EIO the sole agent of Xpeng’s cars. 

 

EIO is in charge of managing the sales, developing the distribution network, and providing the after-sales. ERAL will also give its “full support” to help Xpeng penetrate the Indonesian market, starting with the import to the assembling needs. ERAL’s corporate secretary Badar Teguh Mancik Alam said that the debut would expand its EV reach in Indonesia. 

 

“This deal will enable ERAL to strategically enter the EV business. This will not only expand our business line but also give an additional financial contribution to the company,” Badar said. 

 

Indonesia aims to have 2 million electric cars on its roads by 2030. The archipelagic country also wants to set up 31,000 charging stations by the same year. Indonesia’s EV market today already has some international players, including China’s Wuling and South Korea’s Hyundai.  

 

Source: The Jakarta Globe 

 

Indonesia's Dec. Inflation at 1.57% y/y, as Expected 

 

Indonesia's annual inflation rate in December was 1.57%, barely changed from 1.55% in the previous month, official data showed on Thursday, and close to economists' estimate of a 1.60% rate in a Reuters poll. 

 

The annual core inflation rate, which strips out government-controlled prices and volatile food prices, was 2.26% in December, the same as November and close to the poll forecast of 2.28%. 

 

The country's central bank has targeted inflation in 2024 and 2025 to be within a range of 1.5% to 3.5%. 

 

Policymakers at Bank Indonesia have repeatedly said they were monitoring global developments to determine the right time to continue easing monetary policy. 

 

The central bank cut rates in September, but has since paused despite inflation being at near the lower end of its target range, due to financial market volatility and weakness in the rupiah currency. 

 

Source: Reuters