VAT Increase Mitigation and Sectoral Support

Indonesia has unveiled a $52 billion stimulus package aimed at cushioning the impact of the upcoming value-added tax (VAT) hike from 11% to 12%, effective January 1, 2025. Finance Minister Sri Mulyani Indrawati emphasized the balanced design of these measures, particularly targeting lower-income segments to ensure financial stability amidst the VAT adjustment.

VAT Incentives and Essential Commodities

A significant portion of the stimulus, amounting to IDR265.6 trillion, will be allocated to VAT incentives benefiting various sectors, including micro-, small-, and medium-sized enterprises (MSMEs), essential food staples, education, healthcare, transport, energy, low-cost housing, and financial services. Notably, basic necessities such as rice, meat, fish, eggs, vegetables, and milk will remain exempt from VAT.

Energy Subsidies and Social Aid

The government has allocated IDR394 trillion for energy subsidies and compensation, covering subsidized fuel, electricity, and LPG costs. Additionally, IDR129 trillion has been earmarked for social aid programs, including food aid, health insurance premium subsidies, and enhanced access to unemployment benefits for displaced workers.

Automotive and Labor-Intensive Industries

In the automotive sector, tax incentives will be offered for electric and hybrid vehicles, with substantial tax breaks, including a 3% reduction in luxury taxes for hybrid vehicles. For labor-intensive industries, tax exemptions, financing support, and 50% subsidies for workplace accident insurance will be provided to stimulate job creation and economic growth.

Housing Sector Support

The housing sector will benefit from extended VAT exemptions on house purchases, recognizing its dual role in meeting public needs and stimulating job creation and economic growth.