Here’s the List of Incentive Packages to Compensate for the 12% VAT Increase
The Value Added Tax (VAT) rate is confirmed to increase to 12% starting January 1, 2025, as mandated by the Tax Regulation Harmonization Law (UU HPP). However, the government has prepared a policy package containing various tax incentives to compensate for the increase.
The incentives include VAT borne by the government for certain industrial sectors, an extension of the 0.5% final Income Tax facility, and Income Tax Article (ITA) 21 borne by the government for workers in labor-intensive sectors. In addition, non-tax facilities are also being provided.
The policy package was announced by the government on Monday (December 16). On the occasion, Minister of Finance Sri Mulyani Indrawati stated that these measures aim to maintain public purchasing power despite the VAT rate increasing to 12%.
VAT Facilities
The government provides several VAT facilities, including existing exemptions such as VAT-free provisions for the supply of taxable goods (BKP) or taxable services (JKP) related to basic necessities.
Some basic necessities that are exempt from VAT include:
- Rice
- Meat
- Fish
- Eggs
- Vegetables
- Fresh milk
- Educational services
- Public transportation services
- Modest housing, and
- Drinking water
In addition to the existing facilities, several new VAT facilities will be introduced, such as:
1. 1% VAT Borne by the Government (DTP)
This facility applies to the supply of goods such as wheat flour, industrial sugar, and cooking oil under the "Minyak Kita" program.
Under this scheme, the applicable VAT rate for these goods remains at 12%, but the government will cover 1% of it.
2. 10% VAT Borne by the Government (DTP)
This facility applies to the supply of battery-powered electric vehicles in complete knocked-down (CKD) form.
With this facility, the VAT charged to consumers will be reduced to only 2%.
3. Government-borne VAT for Property
The government will cover the VAT payable on the purchase of homes with a maximum selling price of IDR 5 billion, applicable to the first IDR 2 billion of the base value.
The government-borne VAT value to be provided will reach 100% for purchases made between January and June 2025, and 50% for purchases made between July and December 2025.
Income Tax Facilities
The government will also introduce several income tax facilities as compensation for the increase in the VAT rate to 12%. These include ITA 21 Borne by the Government and the extension of the 0.5% Final Income Tax for MSMEs.
1. ITA 21 Borne by the Government
This facility will be provided to workers in labor-intensive sectors earning a maximum of IDR 10 million per month. For reference, a similar facility was previously granted by the government during the COVID-19 pandemic.
2. Extension of 0.5% Final Income Tax
The government will extend the validity of the 0.5% Final Income Tax rate for MSMEs whose eligibility period expires in 2024. Specifically, MSMEs that have utilized the Final Income Tax facility for seven years will be allowed to extend it to eight years, through 2025.
MSMEs that are still within the seven-year eligibility period can continue to benefit from the facility for a maximum of seven years.
Non-Tax Incentives
In addition to tax facilities, the government will also provide non-tax facilities. These include, first, financing for labor-intensive industries. Second, a 50% subsidy for workplace accident insurance in labor-intensive sectors.
Third, a 50% electricity discount for households with a maximum electricity usage of 2,200 VA. Fourth, improved access to job loss insurance programs. (ASP/KEN)
