Home Blog The VAT to Increase by 12%: What Will Happen Next Year? Finance | Indonesia | Tax Reporting The VAT to Increase by 12%: What Will Happen Next Year? InCorp Editorial Team 2 July 2025 6 minutes reading time Table of Contents Indonesia to Impose 12% VAT in 2025 The Previous VAT Increase from 10% to 11% in April 2022 List of Goods and Services Free from the 12% VAT Rate VAT Impact on Businesses Let InCorp Handle Your Taxation Process Indonesia is preparing to increase its value-added tax (VAT) rate. The new rate will be one percentage point higher than the current 11% and will take effect in 2025. This change is part of a government plan to broaden the tax base and increase revenue. Indonesia to Impose 12% VAT in 2025 The government has stated that the current value-added tax (VAT) rate of 11% will continue to be applicable for the current year. Nonetheless, according to Law Number 7 of 2021 on Tax Regulation Harmonization (UU HPP), a provision stipulates an increment in the VAT rate to 12%, starting to take effect no later than January 1, 2025. However, the government can adjust the 12% VAT rate under specific conditions. According to Article 7, paragraph (3), the rate may vary between 5% and 15%, based on particular considerations. The Previous VAT Increase from 10% to 11% in April 2022 Fajry Akbar, the Research Manager at the Center for Indonesia Taxation Analysis (CITA), views the policy decision to raise the VAT rate as one suitable method of boosting state revenues. Furthermore, Indonesia aims to increase its tax rate to catch up with neighboring countries like Thailand, which is already 16%. Throughout 2022, Finance Minister Sri Mulyani Indrawati secured an additional IDR 60.76 trillion for the state coffers after raising the rate from 10% to 11%. In 2023, with the continuation of the 11% VAT policy, the government recorded tax revenues from VAT and luxury sales tax (PPnBM) components amounting to IDR 764.34 trillion, marking an 11.16% year-on-year growth. The sector is primarily supported by VAT, mainly Domestic VAT (PPN DN) and Import VAT, which contribute 62.35% and 33.47%, respectively, to the total VAT/PPnBM revenues. Each contributes to state revenues of IDR 476.57 trillion and IDR 255.82 trillion, respectively. Currently, the government is preparing revenue projections for the 2025 State Budget, which is earmarked for the new administration. READ MORE:Indonesia Imposes Stricter Penalties For Tax Non-ComplianceGuide On Filing Corporate Annual Tax Return (SPT) In IndonesiaEverything You Need To Know About Value-Added Tax (VAT) In Indonesia List of Goods and Services Free from the 12% VAT Rate Although the VAT rate increase can be an inconvenience, there are a few goods and services exempt from the 12% Value Added Tax: TypesDescriptionsEssential goods highly needed by the general populace Rice Unhusked rice Corn Sago Soybeans Salt (iodized or not) Meat (fresh or preserved) Unprocessed eggs Unadulterated cow’s milk Fresh fruits Fresh vegetables (including chopped ones) Medical Healthcare Services General practitioners specialists, and dentists Veterinarians Health professionals: dental experts, nutritionists, physiotherapists Midwifery and traditional birth attendants Paramedics and nurses Hospitals, maternity homes, health laboratories, and sanatoriums Psychologists and psychiatrists Alternative medicine practitioners Health services covered by national health insurance Social Services General practitioners specialists, and dentists Orphanages, elderly care facilities Firefighting services Emergency assistance during accidents Rehabilitation institutions Provision of funeral homes and burial services Non-profit sports-related services Financial Services Fund-raising services from the public, such as current accounts, time deposits, deposit certificates, savings, and/or similar forms thereof Depositing, lending, or borrowing funds to/from others using written instruments, telecommunication facilities, promissory notes, checks, or other means Financing services (including Sharia-compliant financing) Pawnbroking services (including Sharia and fiduciary) Guarantee services Insurance Services Excluding insurance agents, loss adjusters, and insurance consultants Educational Services Educational institution services, such as general education, vocational education, special education, civil service education, religious education, academic education, and professional education Extracurricular educational services Labor Services Labor supply services as long as the labor provider is not responsible for the work output of the laborers Training services for laborers The Correlation of Indonesia’s VAT and Singapore’s GST Singapore announced its plan to increase the Goods and Services Tax (GST) during the 2022 budget. The plan involves raising the GST from seven to eight percent in 2023, followed by another increase to nine percent in 2024. Indonesia has also applied a similar strategy for 2025. The increased revenue from the GST hike is being used to meet the country’s medium-term fiscal needs. This adjustment in taxation shows Singapore’s commitment to strengthening its tax revenue base, especially considering the rising healthcare costs in the city-state. VAT Impact on Businesses The introduction of VAT can have significant implications for businesses, including Financial Impact VAT adds costs for businesses by requiring them to collect and remit VAT to tax authorities, affecting cash flow management. Pricing and Margins VAT influences pricing and profit margins, requiring businesses to consider covering VAT costs while remaining competitive. Compliance and Administrative Burden VAT entails administrative tasks such as registration, record-keeping, issuing VAT-compliant invoices, and filing returns, posing challenges, especially for smaller businesses. Impact on Sales and Customer Behavior VAT introduction can alter consumer spending patterns based on price sensitivity, affecting product demand and sales volumes. Competitive Landscape Efficient VAT management can give businesses a competitive edge, while non-compliance or failure to adjust prices may lead to market challenges. Supply Chain Considerations VAT impacts supply chains, particularly in international trade, involving import/export VAT, customs procedures, documentation, and cash flow management. Let InCorp Handle Your Taxation Process With InCorp Indonesia’s (an Ascentium Company) specialized services, you can take the burden off tax reporting. Our consultants understand the complexities of Indonesian tax regulations. We handle all aspects of your tax reporting, from meticulous record-keeping to accurate filing with the authorities. By partnering with InCorp, you’ll enjoy several benefits: Streamlined Processes: We take over the time-consuming and often confusing task of tax reporting, allowing you to focus on your core business activities. Enhanced Accuracy: Our tax specialists ensure your filings are error-free, minimizing the risk of penalties and audits. Compliance Confidence: Stay on top of all tax regulations and deadlines with our expert guidance. We keep you informed and ensure you meet all your tax obligations. Peace of Mind: Delegate the responsibility of tax reporting to a trusted advisor. You’ll have peace of mind knowing professionals handle your tax affairs. Don’t let tax reporting slow you down. Contact us today to discuss how our services can benefit your business. Read Full Bio Verified by Dessy Amelia Senior Tax Manager at InCorp Indonesia Dessy has over eight years of experience in tax services, leading InCorp Indonesia's tax team in compliance and strategic solutions. She holds a bachelor's degree in Fiscal (Tax) Administration from Universitas Indonesia and is pursuing a master's degree in Tax Policy and Administration at the same university. She is also a certified tax consultant (USKP C), and a member of the Indonesian Tax Consultants Association (IKPI). Frequently Asked Questions What are the deadlines for the annual tax return? The deadline for an individual tax return is 31 March. A corporate tax return must be lodged within four months after the end of the calendar year or taxable year. More information can be found here: 21 Must-Know Facts about Annual Tax Return in Indonesia. Should I submit tax reports if my company has been established but has no business activities? Yes, submitting monthly and annual tax reports is mandatory even if your company does not have any business activities, thus owing zero taxes. How is pricing determined for your finance, accounting, and tax services? To provide you with accurate pricing information for our finance, accounting, and tax services, we consider the complexities of your inquiries and the dynamic nature of regulations in Indonesia. As a result, the pricing for the services may vary accordingly. For pricing details, please talk to our experts. What taxes are involved? For employment, the company is subject to: Employee income tax article 21 VAT on both the service invoice and the salary invoice 2% recovery tax on salary invoice Get in touch with us. 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