However, the VAT rate of 12% applies only to the delivery and import of luxury motorized vehicles and other luxury goods subject to the Sales Tax on Luxury Goods (PPnBM). For the delivery and import of taxable goods and taxable services besides luxury motorized vehicles and other luxury goods, the VAT rate of 12% applies, but the effective VAT payable is still 11%.

In depth

• The HPP Law amends several provisions, including Law No. 42 of 2009 on Value Added Tax on Goods and Services and Sales Tax on Luxury Goods ("VAT Law"). Under the HPP Law, the VAT rate would increase to 12% by 1 January 2025 at the latest. The 12% VAT rate will be imposed upon all taxable goods and taxable services that were previously subject to the 11% VAT rate.
• On 31 December 2024, the Minister of Finance issued MOF Regulation 131 and confirmed that the VAT rate increased to 12% for all delivery and import of taxable goods and taxable services as mandated by the HPP Law, with effect from 1 January 2025. However, due to the concerns about the negative effect of the VAT rate increase on the economy, the VAT rate of 12% applies only to luxury motorized vehicles and other luxury goods subject to PPnBM. For taxable goods and taxable services besides luxury motorized vehicles and other luxury goods, while the applicable VAT rate is 12%, the effective VAT payable is still 11% because the government decided to apply an alternative VAT base (11/12 of the selling price or import value). Therefore, the VAT payable is calculated as 12% x 11/12 x selling price or import value.
• MOF Regulation 131 sets out the calculation of VAT payable at the rate of 12% as per 1 January 2025, as follows:
  • The VAT on the delivery or import of luxury motorized vehicles and other luxury goods that are subject to PPnBM is 12% of the selling price or import value.
  • For the delivery or import of luxury motorized vehicles and other luxury goods that are subject to PPnBM for the end customers (retail sales), the following arrangement will apply:
    • From 1 to 31 January 2025, the VAT rate is 12% of the alternative VAT base. The VAT payable will effectively be 11% of the selling price or import value.
    • From 1 February 2025, the VAT rate will be 12% of the selling price or import value.
  • The delivery or import of taxable goods and taxable services other than luxury goods is subject to 12% VAT of the alternative VAT base. The VAT payable will effectively be 11% of the selling price or import value.
• The input VAT on the delivery of taxable goods and taxable services with an effective VAT rate of 11% can still be credited, subject to the fulfillment of the requirements to credit the input VAT under the HPP Law.

Actions to consider

Businesses must ensure compliance with the administrative requirements under the new VAT regulation. In general, the VAT payable will remain the same, but the method for declaring the selling price in VAT invoices and similar documents will be adjusted. Certainly, this will also require adjustments to the accounting recording system and the tax reporting system.

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Ria Muhariastuti, Senior Tax Specialist, and Harizka Rizal, Tax Specialist, have contributed to this legal update.

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