Indonesia starts implementing 12% VAT on luxury goods, services

This has reassured the public, who were previously worried that the increase would also apply to basic necessities.

The goods subject to the 12 per cent VAT included private jets, cruise ships, yachts, luxurious houses, and other items classified as luxury goods.

"For goods and services used by the general public, VAT remains exempt, applied at a zero per cent rate. These include basic necessities such as rice, meat, fish, eggs, vegetables, fresh milk, educational services, health services, public transportation, non-luxurious housing, and drinking water," Indonesian President Prabowo Subianto said during a virtual press conference in Jakarta late Tuesday.

Prabowo said the Indonesian government would provide a package of economic incentives to ensure that the VAT increase does not significantly impact the people's purchasing power.

By raising VAT, Indonesia aims to boost the economy, particularly in sectors such as manufacturing, trade, digital industries, and even other informal sectors.