Title: Indonesia‘s PPN Hike to 12% in 2025: The Projected Positive Impacts
Article:
Assistant Editor – December 26, 2024
Jakarta, Indonesia – The Indonesian Ministry of Finance (Kemenkeu) has outlined a series of positive impacts expected from the increase of Value Added Tax (PPN) from 11% to 12%, set to take effect on January 1, 2025. This tax hike aligns with the provisions of Law Number 7 of 2021, which harmonizes tax regulations and exempts essential daily goods and services from the increase.
Projected Positive Impacts
Analysts anticipate that the PPN hike will have a positive influence on four key sectors. These include:
-
Job Creation: Following the PPN increase from 10% to 11% in 2022, the PPN 12% is projected to boost employment. Between 2015 and 2019, an average of 2.4 million jobs were created annually, representing a 2.0% increase. This figure jumped to 3.2% (or 4.2 million jobs) when PPN was increased to 11% in 2022. Post-2022, jobs growth averaged 3.4% (or 4.7 million jobs) per year.
-
Formal Employment Growth: The PPN hike is also expected to drive formal employment growth. From 2015 to 2019, average annual growth was 3.8% (or 1.9 million jobs). In 2022, this figure increased to 3.6% (or 1.9 million jobs). Post-2022, the growth rate jumped to 6.4% (or 3.6 million jobs) per year.
-
Personal Income Tax (PPh 21) Collection: The PPh 21 is projected to increase by 19.35% annually, following the PPN hike. From 2015 to 2019, the average annual increase was 7.2% (or IDR 8.5 trillion). In 2022, this increased to 16.3% (or IDR 24.5 trillion). Post-2022, the PPh 21 is expected to grow by 19.35% per year.
- Inflation Control: Despite the PPN increase, the ministry assures that inflation will be kept in check. Between 2015 and 2019, average annual inflation stood at 3.17%. Although it climbed to 5.51% in 2022 post-PPN hike, it is projected to decrease to 2.08% per year afterwards.
Mitigating Measures
Coordinating Minister for Economic Affairs Airlangga Hartarto has expressed optimism about maintaining purchasing power despite the PPN increase. He announced that the government will introduce various stimulus packages in 2025, including:
- 50% discount on electricity tariffs from January to February
- Property purchase tax exemption up to IDR 2 billion
- Full government subsidy for electric motorcycles
- 3% reduction in luxury goods sales tax (PPnBM) for electric cars
- 0% PPN for the transportation sector
- PPN exemption for essential commodities
- A detailed list of luxury goods to be taxed at 12% PPN to be issued before January 1, 2025
Stay tuned for more updates on Indonesia’s economic developments.
(Source: Kementerian Keuangan Indonesia)