The rate has been raised from 11 percent.
Strategic goods and services, including rice, meat, fish, eggs, vegetables, fresh milk, drinking water, education services, health services, public transportation services as well as public apartments and public home rental services will be exempt from the VAT.
"For goods and services that are basic necessities that have been given exemption facilities or (are) subject to zero percent VAT rate, the policy remains the same," he said at a press conference at the office of the Ministry of Finance in Jakarta on Tuesday.
He explained that the 12 percent VAT would be imposed on luxury goods and services, including private jets, cruise ships, yachts, and luxury houses used by the upper class.
According to Prabowo, the policy is being implemented as part of the government's efforts to create a taxation system that favors the people.
"I think it is very clear that the government will continue to strive to create a fair and pro-people taxation system," he said.
The government will start implementing the 12 percent VAT on luxury goods from January 1, 2025, in keeping with Law Number 7 of 2021 on the Harmonization of Tax Regulations.
Following the rollout of the new VAT rate, the government will also provide a number of incentives under the Economic Stimulus Package.
According to Finance Minister Sri Mulyani Indrawati, the government will continue to provide VAT-free facilities or apply zero percent VAT rates on goods and services that are needed by the general public and affect the lives of many people.
These goods and services include basic necessities such as rice, meat, fish, eggs, vegetables, fresh milk, and sugar for consumption as well as education, health, public transportation, labor, financial, and insurance services.
They further include books, polio vaccines, simple and very simple houses, city-built subsidized low-cost apartments (rusunami), and electricity and drinking water.
For low-income households, the government will provide a stimulus of one percent government-borne VAT for basic necessities and important goods, such as wheat flour, subsidized cooking oil Minyakita, and industrial sugar.
This means the VAT rate for these products will remain at 11 percent.
Related news: President Prabowo announces Jan rollout of 12 percent VAT
Related news: Indonesia exempts goods for food security from 12% VAT
Translator: Mentari Dwi Gayati, Yashinta Difa
Editor: Rahmad Nasution
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