Jakarta. The Finance Ministry defends its decision to raise the Value-Added Tax (VAT) rate to 12 percent starting January 1, 2025, arguing that the measure is designed to strengthen public purchasing power and stimulate the economy.

The plan has raised widespread criticism from both the public and businesses, who fear the increase will strain purchasing power and burden economic activity. Growing voices are urging the government to delay its implementation.

Dwi Astuti, Director of Public Relations at the Directorate General of Taxes, said that the government has prepared several complementary policies to ensure the VAT hike, from 11 percent to 12 percent, benefits the public. “The increase in VAT is accompanied by preemptive policies aimed at increasing purchasing power,” Dwi told B-TV on Wednesday.

Among the measures is the Harmonization of Tax Regulations Law (UU HPP), which raises the taxable income threshold for individuals from Rp 50 million at a rate of 5 percent to Rp 60 million. Micro, small, and medium enterprises (MSMEs) with annual turnovers up to Rp 500 million are also exempted from income tax.

To mitigate the VAT impact, essential goods and services crucial to daily needs will remain VAT-free. “This exemption reflects the government’s commitment to safeguarding household purchasing power,” Dwi added.

Certain goods and services exempted from VAT include staple foods like rice, corn, and salt, basic healthcare services, education, financial and postal services, as well as public transportation and essential energy sources such as kerosene and natural gas.

Economic and Social Benefits
The VAT adjustment also aims to drive investment and economic growth, particularly in the property and automotive sectors. Strategic imports and certain goods will be exempted from VAT, while government-covered tax incentives will apply to house and electric vehicle purchases.

According to Dwi, the policy is expected to create a multiplier effect across industries. “When the property sector grows, related industries like paint, tiles, and construction materials also benefit, creating jobs and sustaining incomes,” she explained.

The additional revenue generated from the VAT increase will support social welfare programs, including direct cash assistance (BLT), subsidies for poor families (PKH), and subsidies for electricity, gas, and fertilizers.

Dwi said the importance of collective responsibility. “This is our shared effort as citizens to contribute to national development. The benefits will ultimately be returned to the people,” she concluded.