(Bloomberg) -- Indonesian President Prabowo Subianto plans to go ahead with raising the value-added tax rate on some goods in January, according to a lawmaker.
The government will increase the VAT to 12% from 11% in 2025 as stated by the law, though it will mainly cover luxury and imported goods, said Mukhamad Misbakhun, chairman of a parliamentary commission overseeing finance, after meeting Prabowo in Jakarta on Thursday.
“The President agreed with our proposal, and it will take effect in January,” Misbakhun said in a phone interview, adding that the finance minister was tasked with immediately drafting detailed regulations.
The tax hike had been met with broad public and political pushback in Southeast Asia’s largest economy, which is grappling with weakening consumption, slower factory activity and layoffs. However, the government needs to shore up revenues as it prepares to implement Prabowo’s signature programs.
The VAT made up more than 25% of the country’s total tax receipts last year. The Indonesian Employers Association estimates that the VAT hike could bring in some 80 trillion rupiah ($5 billion) to state coffers.
Indonesia set a fiscal deficit target of 2.53% of GDP for 2025, reassuring investors that it will be kept below the 3% legal cap despite Prabowo’s ramped-up spending. Next year, the government will begin rolling out its $30-billion free meal program, renovate schools and set up free medical check-ups across the country, among other projects.
--With assistance from Norman Harsono.
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