Jakarta. President Prabowo Subianto officially announced a hike in the Value Added Tax (VAT) from 11 percent to 12 percent, effective January 1, 2025. The announcement was made at the Finance Ministry in Jakarta on Thursday.

The president clarified that the increased VAT will apply exclusively to luxury goods and services, such as private jets, yachts, and luxury homes. "This increase is aimed at items consumed by the wealthier segments of society," Prabowo said on Tuesday. "Examples include private jets, yachts, and luxury homes above the median income level."

He emphasized that essential goods and services, such as rice, meat, vegetables, fresh milk, healthcare, education, public transportation, and basic housing, will remain exempt from VAT, continuing to be taxed at a 0 percent rate, as has been in place since 2022.

The government also unveiled a stimulus package worth Rp 38.6 trillion to support the economy. This includes assistance for 16 million households with 10 kg of rice per month, a 50 percent discount on electricity for customers with 2200-volt capacity, and various tax incentives for workers and small businesses.

Prabowo said the VAT increase is in line with the 2021 tax harmonization law and aims to balance fiscal needs with the protection of the public's purchasing power. "The gradual VAT hike was designed to avoid significant impacts on inflation, purchasing power, and economic growth," he said, reaffirming the government's commitment to policies that favor the people and encourage equitable economic development.

The move has drawn mixed reactions, but Prabowo remained firm, stressing that the government's goal is to create a fairer taxation system while ensuring that vital goods remain affordable for the broader population.