Indonesia’s Value Added Tax (VAT), known locally as Pajak Pertambahan Nilai (PPN), is a key component of the country’s tax system, applied to the sale of most goods and services.
Since April 2022, the standard VAT rate has stood at 11 percent, following a government decision to gradually increase the rate in line with broader fiscal reforms aimed at boosting state revenue.
Starting in 2025, the government plans to raise the VAT rate again, this time to 12 percent. But unlike the blanket increase in 2022, the upcoming adjustment will take a more targeted approach. The higher 12 percent rate will only apply to luxury goods and services, marking a shift toward a more progressive taxation model.
This means everyday items and essential services will continue to be taxed at the current 11 percent, while premium and high-end products will bear the additional tax burden.
Businesses are required to register for VAT once they reach an annual revenue of 4.8 billion rupiah (US$309,500), with businesses earning an annual revenue of less than this figure are allowed to register for VAT voluntarily.
VAT rate
Value-added tax in Indonesia is imposed on the provision of services or the transfer of taxable goods. VAT rates are set out below:
- 12 percent imposed on most manufacturers, retailers, wholesalers, and importers;
- Export of tangible and intangible goods is subject to zero percent VAT; and
- The export of services is subject to zero percent VAT.
Taxable goods and services include:
- The import of taxable goods;
- The delivery of taxable services or import of taxable goods into a customs area;
- The consumption of taxable goods in a customs area in which the goods have originated from outside the customs area;
- The consumption of taxable services originating from outside the customs area, in the customs area; and
- The export of taxable goods by a VATable entity.
Goods and services not subject to VAT
The government sets out which goods and services are categorized as non-taxable.
Non-taxable goods
The Indonesian government has classified specific goods and services as non-taxable under the VAT regime. Non-taxable goods include food and beverages served in hotels and restaurants, select mining outputs such as crude oil and natural gas, basic commodities like rice, eggs, milk, and sugar, and monetary gold used for state reserves.
Similarly, services such as religious activities, education, medical care, public transportation, and financial services are excluded from VAT, reflecting the government’s intent to exempt essential and public-oriented services from taxation.
Non-taxable services
Non-taxable services are the following:
- Religious services;
- Entertainment, hotel, parking, catering, and art services;
- Educational services;
- Medical and health services;
- Public transportation services;
- Financial services; and
- Labor services.
VAT reporting
All VAT-registered entities are required to report and settle VAT liabilities on a monthly basis. Given Indonesia’s decentralized tax system, businesses with branches across multiple jurisdictions must register each branch with its respective local tax office to ensure proper compliance and reporting.
VAT on digital services
Foreign digital service providers with a significant economic presence in Indonesia, and exceeding IDR 600 million in annual transactions or attracting over 12,000 users may be appointed as VAT collectors. These providers are mandated to charge and remit 11 percent VAT on digital goods or services sold to Indonesian consumers.
VAT also applies to the utilization of intangible goods such as intellectual property rights, licensing of industrial equipment, technical or scientific know-how, audiovisual media for broadcasting, and digital assets.
VAT exemption
Exemptions are granted for imports made into bonded zones, under foreign aid arrangements, or by specific industries like national airlines.
Certain imports can be exempted from VAT. These include:
- The import of taxable goods into free trade zones;
- Import of services and goods financed by foreign aid;
- Import of raw materials by companies in bonded zones; and
- Imports made by companies in specific industries, such as national airlines.
VAT refunds
Eligible exporters may also claim VAT refunds, but all refund applications must undergo verification by the Directorate General of Taxes (DGT). A refund decision typically follows within 12 months from the application date.
Export services eligible for zero-rated VAT
The following types of exported services are subject to zero-rated VAT:
- Toll manufacturing;
- Repair and maintenance;
- Freight forwarding services for export-orientated goods;
- Construction consulting services (which includes the development of feasibility studies, assessments, and designing of a building or master plan that is located outside of Indonesia);
- Information and technology services;
- Research and development services;
- Charter of aircraft or ships for international flights or shipping services;
- Business consultation and management;
- Legal consultation;
- Architecture and interior design consulting;
- HR consulting;
- Marketing;
- Engineering;
- Accounting or bookkeeping;
- Taxation;
- Financial audits;
- Trading services to find Indonesian suppliers for export purposes; and
- Interconnection, satellite providers, and/or communication and data
Export services eligible for zero-rated VAT must comply with two formal requirements.
There must be a written agreement between the Indonesian taxable business and the foreign recipient that must include the type of service, the value of the exported services, and a description of the service provided by the Indonesian taxable business that will be utilized by the foreign recipient, and show supporting documents for payments from the recipient of the exported service to the Indonesian service provider.
Failure to meet the above requirements will mean the service is deemed to have occurred within the territory of Indonesia and will be subject to 10 percent VAT.
VAT during pre-production period
A VAT-able entity is considered to not have made a delivery if they have not exported or delivered any VAT-able services or goods. Any deliveries made for the entity’s own use, as gifts for customers, or deliveries from a head office or branch office, are not considered as deliveries when assessing if an entity has moved beyond the pre-production stage.
The pre-production stage is generally three years, which is extended for manufacturing sectors and business sectors under the National Strategic Projects to five or six years, respectively.
VAT credit
Input VAT cannot be credited and must be paid back to the state treasury by the VAT-able entity if the entity has received a refund of the tax overpayment and/or has credited the input VAT as output VAT payable in a tax period.
Crediting input VAT before becoming a VAT-able entity
If the Directorate General of Tax deems an entity to be VAT-able, then the input VAT before this can now be creditable 80 percent of the output VAT.
