Indonesia's President Prabowo Subianto on Tuesday said a planned increase in value-added tax (VAT) rate by one percentage point to 12% effective Wednesday, Jan. 1, will apply only to luxury goods and services.
Prabowo said the decision should end speculation over which items and services would be affected by the VAT increase.
The decision also reversed an announcement by finance ministry officials in December. Authorities at the time had said the VAT hike would apply across the board except for cooking oil sold under a government programme, sugar for industry and wheat flour, which would still be subject to an 11% VAT rate.
"Today, the government has decided that the increase of VAT rate from 11% to 12% will apply only to luxury goods and services that are the subject of luxury sales tax and are consumed by those with higher income, such as private jets, yachts and luxury homes," Prabowo said.
Prabowo said the government will still move forward with planned support measures intended to soften the blow from the VAT hike, worth 38.6 trillion rupiah ($2.40 billion), which include electricity discounts and other tax breaks.
($1 = 16,090.0000 rupiah)
