https://pro-visioner.com/pvk/ Explanation of Luxury Goods VAT in Full Effect Starting 1 February 2025 , Luxury Goods VAT has become a hot topic of conversation following the government’s decision to raise the VAT rate to 12 per cent. However, this increase, which only applies to luxury goods, has generated various responses from the public and business players.
The Indonesian government has taken another strategic step in regulating national taxation by fully enforcing VAT on taxable goods classified as luxury, effective from 1 February 2025.
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Enforcement of Luxury Goods VAT
Luxury goods VAT will remain subject to a Value Added Tax (VAT) rate of 11% until January 2025. However, a higher VAT rate of 12% will come into effect for luxury goods from 1 February 2025 onwards. This rate change is regulated in Article 5 of Minister of Finance Regulation (PMK) No. 131/2024. The following is an explanation of the key points of this policy:
1. New VAT Rate
Starting 1 January 2025, the VAT rate officially increases to 12%, in accordance with the provisions of Law No. 7/2021 on Harmonisation of Tax Regulations (HPP Law). However, this rate only applies fully to goods and services that fall under the luxury goods category. Meanwhile, for non-luxury goods and services, the public will not feel a significant increase in rates.
VAT for these goods and services is calculated with a Tax Imposition Base (DPP) of 11/12 of the selling price, which means that the tax burden imposed remains equivalent to the previous 11% VAT rate. To further ease the tax burden, planned incentives are still provided to the community.
2. VAT Calculation Based on Types of
Luxury Goods/Services
:
Import: VAT is charged at 12% of the import value.
Delivery by PKP: Until 31 January 2025, VAT is calculated at 12% of 11/12 of the selling price; starting 1 February 2025, VAT is calculated at 12% of the full selling price.
Exports: VAT rate remains at 0%.
Non-luxury Goods, Services, and Intangible Goods:
VAT is calculated at 12% of 11/12 of the import value, selling price, or replacement.
The VAT rate for exports remains at 0%.
3. Exemptions and Special Arrangements
Some exemptions apply to certain Taxable Entrepreneurs (PKP) who use the Other Value DPP or VAT of Specific Amount, which are in accordance with applicable laws and regulations. Examples of exemptions include:
Free gift.
Self-use.
Items such as agricultural products, 3 kg LPG, gold jewellery, used motor vehicles, and cryptocurrencies.
Also Read: VAT Provision Changes 2025: Adjustment of DPP for Luxury and Non-luxury
Goods 4. Example of
Luxury Goods VAT Calculation
:
Example: Delivery of a motor vehicle with a selling price of Rp600,000,000 in January 2025, VAT is calculated:
Until 31 January 2025: 12% x (11/12 x Rp600,000,000) = Rp66,000,000.
Starting 1 February 2025: 12% x Rp600,000,000 = Rp72,000,000.
Non-luxury Goods:
Example: Delivery of a computer with a selling price of Rp12,000,000, VAT is calculated:
12% x (11/12 x Rp12,000,000) = Rp1,320,000.
5. Legal Basis
This rule change is based on:
Article 5 paragraph (1) and Article 8 of the Value Added Tax Law.
Regulation of the Minister of Finance Number 131 Year 2024, stipulates that:
a. starting from 1 January 2025 until 31 January 2025, the Value Added Tax payable is calculated by multiplying the rate of 12% (twelve percent) with the Tax Base in the form of another value of 11/12 (eleven-twelfths) of the selling price; and
b. starting from 1 February 2025, the
provisions as referred to in Article 2 paragraph (2) apply.
6. Examples of Goods Subject to PPnBM
Various luxury goods subject to Sales Tax on Luxury Goods (PPnBM) include:
Motorised vehicles.
Luxury residence.
Aircraft, hot air balloons, helicopters (other than for state purposes).
Sea vessels, yachts, and ships (other than for tourism purposes).
Firearms and ammunition (other than for state purposes).
Also Read: Comparison of VAT Rates of ASEAN Countries, Which One is Higher?
Objectives of the 2025 VAT Policy The policy to
change the VAT rate on luxury goods effective from 1 January 2025 has several main objectives:
Improving the Fairness of Taxation
This policy aims to create a fairer taxation system, where the VAT rate for luxury goods is higher, while non-luxury goods are maintained so as not to burden low-income people.
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Securing State Revenue
By raising the VAT rate for luxury goods and adjusting it for non-luxury goods, a more stable increase in state revenue is expected to support infrastructure development and social programmes.
Securing State Revenue
By raising the VAT rate for luxury goods and adjusting it for non-luxury goods, a more stable increase in state revenue is expected to support infrastructure development and social programmes.
Protecting Small and Traditional Producers
To prevent excessive tax burden on small producers and micro-enterprises, this policy provides exemptions or light rates for non-luxury goods and services, as well as tax incentives for certain sectors.
Maintain Economic Stability and Public Welfare
This policy aims to maintain price stability and public purchasing power, by regulating VAT rates in accordance with sectors that have higher purchasing power and basic public needs.
Encouraging Increased Tax Compliance
Through a clear and transparent policy, it is expected that the public will better understand the importance of taxes, resulting in increased tax compliance.
Increasing Economic Competitiveness
This policy also aims to increase the competitiveness of non-luxury products, with lower VAT rates, so that this sector is more competitive in domestic and international markets.
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Conclusion
With these more strategic and comprehensive objectives, the change in VAT on luxury goods policy is expected to encourage the creation of a more inclusive tax ecosystem and support sustainable economic development.
The public is expected to adjust to this policy, with a better understanding of how tax rates affect their daily lives.
As a result, it is expected that the public will benefit from this policy through fairer rates, more stable state revenues, and greater protection for small producers and more needy sectors of the economy.
