Indonesia likely to delay Jan 1 start of VAT increase

Top official says govt has to 'first give stimulus to those struggling economically'

- Linda Yulisman

JAKARTA - Ms Lulu Cathelea has resolved to tighten her belt in 2025 by buying cheaper lunches and making her own coffee, as she frets over the imminent hike in Indonesia's value-added tax (VAT) to 12 per cent from 11 per cent.

The planned tax hike will jack up prices of goods and services across the board, hurt consumption and hit the middle class the hardest, economists say.

"With the VAT hike, I am prepared to downgrade my lifestyle. For instance, I will buy lunch at small food stalls instead of restaurants, and buy coffee in sachets instead of getting ready-to-drink coffee," the 30-year-old cashier in an automobile showroom told The Straits Times.

The Jakarta resident is keen to continue to save a fifth of her monthly salary, which is slightly above Jakarta's minimum monthly wage of around five million rupiah (S$425) for 2024.

Responding to mounting public concerns that the VAT hike is inflationary, a senior official on Nov 27 indicated that there would likely be a delay of several months from the original start date of Jan 1, 2025.

This is as the government prepares measures to counter the impact, including paying the electricity bills of middle- and lower-income households for a few months.

Indonesian President Prabowo Subianto delivered some good news on Nov 29, announcing an average 6.5 per cent increase in the national minimum wage for 2025 to keep up with living costs.

The planned tax hike is set to place Indonesia's VAT - akin to a goods and services tax or GST - as the highest in the region, matching the Philippines' 12 per cent.