https://provisio-id.com Tax Policy List for 2025 After VAT Officially Increases to 12 Percent
The 2025 tax policies bring significant changes, including the increase of the Value Added Tax (VAT) rate to 12 percent. This step is part of the government’s effort to strengthen state revenue and support more sustainable development.
For businesses, understanding and complying with tax policies is crucial to managing risks and ensuring business continuity amid growing global competition. Alongside the VAT increase, other policies are designed to ensure a fairer and more efficient tax system.
Increase in VAT Rate
The VAT rate increase from 11 percent to 12 percent applies to all goods and services previously subject to VAT. This policy is the implementation of Law No. 7 of 2021 on the Harmonization of Tax Regulations (HPP).
Effective January 1, 2025, the VAT rate increase excludes essential goods, healthcare services, and education services to protect consumers’ purchasing power.
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Tax Policies Following the VAT Increase
To safeguard public welfare amidst the VAT hike, the government has introduced a series of economic stimulus tax policies categorized into three main groups:
- Support for Low-Income Communities
- VAT Subsidy for Additional Essentials
The government provides a 1% VAT subsidy (DTP) for strategic essential goods, including:- Public cooking oil (Minyakita)
- Wheat flour
- Industrial sugar
This measure ensures essential goods remain affordable, maintaining the public’s purchasing power.
- VAT Subsidy for Additional Essentials
- Incentives for SMEs, Entrepreneurs, and Industries
- Extension of 0.5% Final Income Tax (PPh Final)
The 0.5% final income tax rate, extended until 2025, supports small and medium enterprises (SMEs). - Income Tax Exemption for Small SMEs
SMEs with an annual turnover below IDR 500 million remain exempt from income tax, fostering growth without heavy fiscal burdens.
- Extension of 0.5% Final Income Tax (PPh Final)
- Support for the Middle Class
- VAT Subsidy for Property
For the property sector, homes priced up to IDR 5 billion receive the following VAT discounts:- 100% discount from January to June 2025
- 50% discount from July to December 2025
- VAT Subsidy for Automotive
Fiscal incentives for battery-based electric vehicles (BEVs) include:- 10% VAT subsidy for locally assembled BEVs
- 15% Luxury Goods Tax (PPnBM) subsidy for imported BEVs
- 0% import duty for BEVs
Hybrid vehicles receive a 3% PPnBM subsidy.
- Income Tax Article 21 Subsidy
Workers in labor-intensive sectors earning up to IDR 10 million per month are partially exempted from Article 21 income tax, supporting their purchasing power and productivity.
- VAT Subsidy for Property
Impact of Tax Policies Post-VAT Increase
The 2025 tax policies present both opportunities and challenges for Indonesia’s economy. On the one hand, these policies are expected to boost much-needed state revenue for development. On the other hand, increased tax rates may affect consumer purchasing power and business stability, particularly in price-sensitive sectors.
To minimize adverse impacts, the government must ensure fair and transparent policy implementation and support vulnerable groups with social programs. With careful execution, the 2025 tax reforms could lay a solid foundation for Indonesia’s future economic growth.