On December 16, 2024, Indonesia announced a comprehensive economic policy package valued at 827 trillion rupiah (approximately US$51.5 billion) to mitigate the impact of a forthcoming increase in the Value Added Tax (VAT) from 11% to 12%, which is set to take effect on January 1, 2025. Finance Minister Sri Mulyani Indrawati emphasized that the package is designed to protect vulnerable groups while promoting sustainable economic growth [e55547de].
The measures included in this package feature significant initiatives such as electricity tariff cuts, VAT exemptions on certain property sales, and tax incentives aimed at labor-intensive industries. Specifically, the government will exempt staple foods from VAT and reduce electricity tariffs by 50% for middle-income households. Furthermore, employees in labor-intensive sectors earning below 10 million rupiah (approximately US$624.61) will not be subject to income tax [e55547de].
This proactive approach is part of Indonesia's broader strategy to cushion the economic effects of the VAT hike, which is expected to impact consumer prices and overall economic activity. The government aims to ensure that the increase does not disproportionately affect lower-income households, thereby maintaining social stability while fostering economic resilience [e55547de].
As Indonesia navigates these fiscal changes, it reflects a growing trend among nations to implement targeted economic policies that address both revenue generation and social equity. The measures announced are anticipated to stimulate growth in sectors that are crucial for job creation and economic recovery [e55547de].