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Indonesia’s Value Added Tax to Likely Become the Highest in Southeast Asia, Draws Criticism

Indonesia’s Value Added Tax to Likely Become the Highest in Southeast Asia, Draws Criticism
Indonesia’s Value Added Tax to Likely Become the Highest in Southeast Asia, Draws Criticism. Image Source: Tax Academy

Indonesia’s Value Added Tax (Pajak Pertambahan Nilai or PPN) will be the highest in Southeast Asia if it increases to 12% in 2025.

The Finance Minister of the Republic of Indonesia, Sri Mulyani, revealed that the increase in PPN starting in 2025 aligns with the mandate of Law (Undang-Undang or UU) Number 7 of 2021 concerning the Harmonisation of Tax Regulations. She also emphasised that there has been no discussion about postponing the implementation of the tax increase.

Although there is considerable debate about raising taxes amid weakening purchasing power, Mulyani reminded the public that the state budget (Anggaran Pendapatan dan Belanja Negara or APBN), as an instrument to absorb economic shocks, must remain healthy.

“The APBN must still be kept healthy because the APBN must function and be able to respond in the global financial crisis episode. We must still maintain a countercyclical,” said Mulyani at the Commission XI Working Meeting on Wednesday, the 13th of November.

Citing Worldwide Tax Summaries data released by financial consultant PWC, Indonesia’s PPN rate is currently the second highest in Southeast Asia. Malaysia, Laos, Vietnam, and Cambodia follow with rates of 10% each. Meanwhile, Singapore applies a PPN rate of 9%, Thailand 7%, and Myanmar 7%. On the other hand, Brunei remains the only country in Southeast Asia that does not levy PPN on its citizens.

The proposed tax increase has drawn criticism. Deputy Chairperson of Commission VII of the Indonesian House of Representatives (Dewan Perwakilan Rakyat Republik Indonesia or DPR RI), Evita Nursanty, urged the government to consider the impact on Micro, Small, and Medium Enterprises before raising the PPN rate to 12%.

“We understand the government’s intention to increase revenue, but now the economic turmoil has had a significant impact on the people,” remarked Nursanty to the press in a statement on Wednesday, the 20th of November. “Think about the fate of the millions of Micro, Small, and Medium Enterprises that will be affected, including workers who live from there.”

In Indonesia, PPN and luxury goods sales tax are the second-largest contributors to tax revenue after income tax. As of October 2024, they were recorded at Rp629.42 trillion, or 40.88% of the total tax revenue of Rp1,517.53 trillion.

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