Jakarta. President Prabowo Subianto said on Friday that the planned increase in value-added tax (VAT) from 11 percent to 12 percent will be applied selectively, targeting only luxury goods and services.

The hike, mandated by existing legislation, is scheduled to take effect on January 1, 2025.

“The VAT increase is a legal mandate, and we will implement it selectively, focusing on luxury goods,” Prabowo told reporters at the State Palace in Jakarta.

His economic advisor, Mari Elka Pangestu, echoed the sentiment, highlighting the government’s efforts to balance boosting tax revenues with safeguarding purchasing power and avoiding undue burden on low-income families.

“The president is deeply concerned about finding a balanced approach to increasing state revenues while protecting businesses and people’s purchasing power. The government will announce the policy details soon,” Mari said.

Economist Yusuf Rendy Manilet raised concerns about the potential challenges of multiple VAT rates, noting that applying different rates -- such as maintaining the current 11 percent for certain goods and services -- could lead to higher compliance costs and confusion among taxpayers.

“Without clear technical guidance, misapplication of VAT rates is a real risk, and even tax collectors could face difficulties,” Yusuf warned.

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