Indonesia's VAT U-turn raises questions for public finances

Southeast Asia's largest economy relies on the levy more than most nations

Indonesian bank notes at a money changer in Jakarta. President Prabowo Subianto's decision to scale back a planned value-added tax increase has left uncertainties hanging over the public finances of Southeast Asia's largest economy. © Reuters

ISMI DAMAYANTI, Nikkei staff writer

January 3, 2025 11:57 JST

JAKARTA -- Just five hours before a New Year's Day increase in Indonesia's value-added tax (VAT) rate from 11% to 12% was set to take effect, President Prabowo Subianto announced it would be scaled back significantly.

"There is still doubt or misunderstanding ... so the government has decided that the VAT rate increase from 11% to 12% will only apply to luxury goods and services," Prabowo said at the Ministry of Finance.