Jakarta. The Indonesian government has unveiled a series of economic stimulus packages totaling Rp 827 trillion ($51.65 billion) for 2025, designed to mitigate economic shocks and address the weakening purchasing power of low- and middle-income groups. The stimulus also aims to cushion the impact of an upcoming increase in the value-added tax (VAT) rate from 11 percent to 12 percent, set to take effect on Jan. 1, 2025.

Finance Minister Sri Mulyani Indrawati said the stimulus measures are carefully designed to provide balanced support, particularly for lower-income segments of society, to ensure their financial stability despite the VAT increase.

A significant portion of the stimulus, amounting to Rp 265.6 trillion, will go toward VAT incentives that benefit a range of sectors. These include micro, small, and medium enterprises (MSMEs), essential food staples, education, healthcare, transportation, energy, low-cost housing, and financial services. Basic necessities like rice, meat, fish, eggs, vegetables, and milk will remain exempt from VAT. However, premium goods such as Wagyu beef, imported fruits, and luxury services like high-end healthcare and education will be taxed at the new 12 percent rate starting in 2025.

“The government and the House of Representatives have decided not to impose VAT on essential commodities needed by the public. The cost of this policy is estimated at Rp 265.6 trillion,” Sri Mulyani said during a press conference on Monday.

The government has also allocated Rp 394 trillion for energy subsidies and compensation, which will cover the costs of subsidized fuel, electricity, and LPG (liquid petroleum gas). In addition, Rp 38 trillion will be dedicated to interest subsidies for the government’s microloan program, which includes an extension of the 0.5 percent final income tax policy for small businesses.

To further support the economy, the government is allocating Rp 129 trillion to social aid programs. These will include the Family Hope Program (PKH), food aid, the Indonesia Smart Program (PIP), subsidies for health insurance premiums under the National Health Insurance scheme (PBI JKN), and easier access to unemployment benefits for laid-off workers.

In the automotive sector, the government will offer tax incentives for electric and hybrid vehicles. Electric vehicles (EVs) and hybrid cars will receive substantial tax breaks, including a 3 percent reduction in luxury taxes for hybrid vehicles.

For labor-intensive industries, the government will provide tax exemptions, financing support, and 50 percent subsidies for workplace accident insurance to encourage job creation and economic growth in this sector.

In the housing sector, the government would extend VAT exemptions for house purchases. “The housing sector not only meets the public’s basic needs but also has a significant multiplier effect, creating jobs and stimulating economic growth,” she said.

In terms of the VAT adjustment, the 12 percent rate will primarily target luxury goods and services. For instance, premium beef such as Wagyu and Kobe, which can cost up to Rp 3 million per kilogram, will be subject to VAT, while more affordable beef, priced between Rp 150,000 and Rp 200,000 per kilogram, will remain exempt. Similarly, luxury health and education services will be taxed, while basic services for the general public will not.

“This comprehensive stimulus package is designed to protect the economy, safeguard the most vulnerable groups, and foster long-term, sustainable growth,” Sri Mulyani concluded.