On the last day of 2024, the Indonesian President, together with the Minister of Finance ("MoF") made a surprising announcement in light of the controversy regarding the planned VAT rate increase from 11% to 12%, originally mandated by Law No. 7 of 2021 on Harmonization of Tax Regulations ("Law 7/2021"). Due to various concerns raised by businesses and the Indonesian public, MoF has decided to cancel the VAT increase for general goods and only applies the VAT increase to limited taxable objects.
Under Law 7/2021, 12% VAT rate shall be applicable to all taxable goods starting from the financial year of 2025 (i.e., 1 January 2025). Given the decision to cancel the imposition of the 12% VAT rate on most taxable goods, MoF issued MoF Regulation No. 131 of 2024 ("MoF Reg. 131/2024") on 31 December 2024 to provide elaboration regarding the applicability of 12 % VAT rate and goods that are not subject to the VAT increase.
In this article, we summarize the key highlights of MoF Reg. 131/2024, , particularly (i) VAT Rate for 2025, (ii) Transition Period, (iii) List of Goods Subject to 12% VAT Rate, and (iv) Concluding Remarks, businesses need to be aware of.
- VAT Rate for 2025
MoF Reg. 131/2024 implements the 12% VAT rate by, (i) limiting the VAT taxable objects, and (ii) introducing a new method for calculating the VAT rate.
Pursuant to Article 2 (3) of MoF Reg. 131/2024, the 12% VAT rate will be imposed on taxable goods that are classified as luxurious goods, including motorized vehicles, luxurious housings (i.e., apartments, condominiums, etc.), helicopters, and luxurious vessels (i.e., Yachts that are not used for commercial purposes) (please refer to Section 3 below). For instance, a IDR 1 billion two-wheeled vehicle will be subject to VAT valued at IDR 120 million (12% VAT rate).
On the other hand, non-luxury taxable goods or general goods will be subject to a 12% VAT rate based on 11/12 of the selling price, resulting in an effective rate of 11% ("Other VAT Rate"). MoF clarifies that non-luxury taxable goods previously subject to 11% VAT rate will remain subject to such Other VAT Rate.
However, since the imposition of 12% VAT rate under Law 7/2021 has not been revoked, MoF Reg. 131/2024 provides the calculation formula of 12% of 11/12 of the sale price, or effectively, 11%. For instance, IDR 100 million cars will be subject to VAT rate valued at IDR 11 million.
- Transition Period
MoF Reg. 131/2024 provides a transition period until 31 January 2025 to businesses that must implement the new calculation formula, particularly the VAT rate for their luxury taxable goods. Please note that the 12% VAT rate for taxable luxury goods will be effective as of 1 February 2025, while the Other VAT Rate (i.e. 12% of 11/12 of the sale price or 11% VAT rate) shall apply to the luxury taxable goods until 31 January 2025 (Article 5 of MoF Reg. 131/2024).
- List of Goods Subject to 12% VAT Rate
The goods that are subject to the 12% VAT rate are the ones listed in MoF Regulation No. 42/PMK/0.10/2022 on Amendment of MoF Regulation No. 141/PMK.010/2021 on Stipulation of Vehicles Subject to Tax on Luxury Goods and Procedure of implementation, Granting and Administration of the Exemption, and Tax Credit on Sales of Luxury Goods; and MoF Regulation No. 15/PMK.03/2023 on Amendment to MoF Regulation No. 96/PMK.03/2021 on Stipulation of Taxable Goods other than Vehicles Subject to Tax of Luxury Goods and Procedure for Exemption on the Tax of Luxury Goods. They are as follows:
- Non-commercial aircrafts that are not used for state purposes or commercial transportation;
- Helicopters, that are not used for state purposes or commercial transportation;
- Other types of aircrafts other than helicopters;
- Vehicles (cars) >3000cc (3000cc and above), including hybrid vehicles;
- Motorcycles >500cc (500cc and above);
- Golf Buggy;
- Special vehicles including caravans;
- Luxurious Residential Housing, including apartment, condominium, or townhouse, each with a sale-value above IDR30 billion;
- Hot air balloon;
- Firearms (artillery, revolvers, pistols), except those used for state purposes, not including Air Riffle bullets;
- Luxurious Yachts, excursion vessels, and other similar types of water transportation, except those used for state purposes and commercial transportation.
- Concluding Remarks
The enactment of MoF Reg. 131/2024 just before the deadline of the imposition of the 12% VAT rate may impact businesses, as they have to redefine the VAT calculations for their luxury and non-luxury goods. Luxury taxable goods, such as high-valued vehicles and properties, will be subject to 12% VAT rate starting from 1 February 2025, while non-luxury goods will effectively retain the 11% VAT rate through the new calculation. This change requires businesses to adapt their pricing and accounting structures during the transition period up to 31 January 2025.
Note that Law 7/2021 remains effective. No laws or regulations in lieu of laws have been issued to replace or revoke the provision on VAT increase as mandated by Law 7/2021. MoF Reg. 131/2024 is effective as the implementing regulation to Law 7/2021 as its hierarchy in the Indonesian legal system is below the law. The regulation cannot amend or replace Law 7/2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
