Jakarta. The government will proceed with plans to increase the value-added tax (VAT) rate from 11 percent to 12 percent on January 1, 2025, despite growing objections from businesses and the public, a senior lawmaker confirmed on Thursday.

Mukhamad Misbakhun, chairman of the House of Representatives Commission XI overseeing macroeconomic policies, announced the decision following a meeting with President Prabowo Subianto at the State Palace in Jakarta.

Misbakhun said the VAT hike will be applied selectively to ensure it does not disproportionately impact the most vulnerable members of society.

“The new VAT rate will be implemented as mandated by law starting January 1, 2025. However, the focus will be very selective, targeting domestic and imported luxury goods,” Misbakhun said.

He clarified that certain essential goods and services, such as basic commodities, healthcare, banking, and other public services, will continue to be taxed at the current rate or be exempt altogether.

The lawmaker also noted that President Prabowo plans to launch a crackdown on illegal economic activities to increase state revenues without further burdening low-income families.

“The government will take action against illicit activities to optimize state revenues, focusing on sectors that have evaded taxation for years,” Misbakhun said, without providing specific details.

Deputy Finance Minister Anggito Abimanyu previously revealed that the government is exploring additional revenue streams from the so-called “underground economy,” including sports betting and gambling, which remain largely untapped.