Indonesia is setting the stage for a significant tax shift as the government finalizes plans to impose a 12 percent Value-Added Tax (VAT) on luxury goods. This policy, spearheaded by Finance Minister Sri Mulyani Indrawati, aligns with the broader goals of the Harmonization of Tax Regulations Law (UU HPP). But how does this change affect the calculation and principles underlying the single-rate VAT system?
Effective January 1, 2025, the VAT rate on luxury goods will rise from 11% to 12%. The government will implement a tax base scheme (DPP) to maintain the integrity of the single tariff principle, ensuring it does not disrupt the UU HPP’s established framework. “As per Article 7, paragraph (1), letter b of the VAT Law revised under the UU HPP, the VAT rate becomes 12% starting January 1, 2025. The VAT Law maintains a single tariff system, not a multi-rate system,” explained Prianto Budi Saptono, a tax expert and Executive Director of the Pratama-Kreston Tax Research Institute.
Read also: Experience the Thrill of World Exploration at Minimania Bandung!
The Finance Ministry’s Regulation Number 131 of 2024 outlines the mechanism for differentiating between luxury and non-luxury goods. Two categories of tax base calculations will be applied:
- Luxury Goods: The VAT is calculated by multiplying the 12% rate by the DPP, which corresponds to the selling price or import value.
- Non-Luxury Goods: Here, the VAT rate is applied to 11/12 of the selling price, import value, or compensation amount.
For instance, if a transaction is valued at IDR 1,000,000:
- Luxury goods VAT is 12%×1,000,000=IDR120,00012\% \times 1,000,000 = IDR 120,00012%×1,000,000=IDR120,000.
- Non-luxury goods VAT is 12%×(11/12×1,000,000)=IDR110,00012\% \times (11/12 \times 1,000,000) = IDR 110,00012%×(11/12×1,000,000)=IDR110,000.
By distinguishing between these categories, the government ensures that the overall tax rate remains uniform while providing flexibility in how VAT is applied to luxury and non-luxury goods.
Defending the Single Tariff System of 12 Percent VAT
Minister Sri Mulyani has emphasized that the 12% VAT rate on luxury goods does not introduce a multi-rate system. “We adhere to the UU HPP’s single tariff principle, maintaining the 12% rate for luxury goods,” she clarified. This assurance addresses concerns that differentiating VAT for luxury items might deviate from Indonesia’s commitment to a uniform tax structure.
The use of the DPP ensures that non-luxury items are taxed consistently with the broader system, avoiding unnecessary disruptions. “With the DPP value framework, the general VAT rate remains 12% for all other taxable goods and services outside the luxury category,” said Prianto.
Ensuring Transparency and Simplicity
The updated framework underscores the government’s commitment to balancing fiscal goals with fairness. Luxury goods, classified as items subject to the Luxury Goods Sales Tax (PPnBM), will now fall under a more structured and transparent VAT calculation system. This approach not only upholds Indonesia’s tax principles but also ensures simplicity for taxpayers and businesses.
With the new tax regime set to roll out in just months, Indonesia’s luxury goods market is bracing for the changes. For consumers and businesses, this development marks a step toward aligning with global tax standards while retaining a firm commitment to a single-rate structure.
 on..){kind=link}