Regulation Update
New VAT Policy: Rate to Rise, 13 Goods & Services are No Longer Tax-Free

Thursday, 07 October 2021

New VAT Policy: Rate to Rise, 13 Goods & Services are No Longer Tax-Free

The government will increase the rate of Value Added Tax (VAT), from 10% to 11% as of April 2022 and will rise again to 12% by 2025 at the latest.

However, the government is also authorized to change the VAT rate to a minimum of 5% and a maximum of 15% with the approval of the House of Representatives.

The discretion of VAT rate determination is revealed in the Harmonized Tax Law (HPP), which is the result of an amendment agreement on taxation law between the government and the House. 

The Omnibus bill points out that a 0% VAT rate will only be granted on the delivery of goods and services related to export activities.

Tax Base Expansion

In addition, the government and the House also agreed to abolish certain types of goods and services that have not been subject to VAT. With the abolition, it will increase the types of goods and services that can be taxed by the government.

The following is a list of goods and services that are no longer VAT-free:

  • mining products or drilling products are taken directly from the source; 
  • basic necessities that the people need most;
  • medical health services;
  • social services;
  • mail service with stamp;
  • financial services;
  • insurance services;
  • educational services;
  • non-advertising broadcasting services;
  • public transportation services on land and in water as well as domestic air transportation services which are an inseparable part of foreign air transportation services;
  • labor services;
  • public telephone services using coins;  and
  • money remittance service by postal money order.

However, Finance Minister Sri Mulyani Indrawati guarantees that the government will provide facilities for exemption or reduction of VAT on goods/services that are closely related to the lives of many people. Especially for basic necessities, health services, educational services, social services, and several other services.

"People with low and medium incomes still don't need to pay VAT on the consumption of these basic necessities," said the Minister of Finance at a press conference via the Ministry of Finance's YouTube, Thursday (7/10/2021).

She ensured that the expansion of the VAT base will focus on the principle of justice, especially for low-income people.

In other words, there is a change in the taxation scheme, especially on basic necessities and financial services. From those originally included in the category of non-taxable goods/ non-taxable service to be VAT exempt.

Final VAT

The government will also apply a special final VAT rate--a sort of Goods and Services Tax (GST)--on certain types of goods/services or certain business sectors.

"For example, 1%, 2%, or 3% of revenue, and this will be regulated through PMK (Minister of Finance regulation)," she said.
 

Undang-Undang Nomor 7 Tahun 2021 tentang Harmonisasi Peraturan Perpajakan (HPP)

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