Why Indonesia Hikes Tax in Luxury Goods?

The VAT increment will be imposed only on items classified under the Sales Tax on Luxury Goods (StoLG) category. This includes high-value items such as private jets, yachts, cruise ships, and luxurious properties. Non-luxury goods and services will remain unaffected, with VAT rates staying at 11% for items already subject to this tax since 2022.

Prabowo emphasized that essential goods and services, exempt from VAT, will continue to enjoy these exemptions. Items such as staple foods, public transportation, medical services, and financial products will remain VAT-free, ensuring that daily necessities remain affordable for the broader population.

The hospitality industry initially expressed apprehension over the proposed VAT hike. The Indonesian Hotel and Restaurant Association (IHRA) argued that the increase could disproportionately impact hotels catering to middle- and lower-class consumers. IHRA Secretary General Maulana Yusran noted that rising VAT rates could escalate operational costs, affecting profitability and consumer demand.

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