VAT and Luxury Goods Tax: The Pillars of Indonesia’s Tax Revenue
March 31, 2026
Despite the current international economic instability, Indonesia’s Value Added Tax (VAT) and VAT on Luxury Goods recorded significant growth in February 2026. According to the APBN KiTA press conference in March 2026, these sectors contributed a staggering 97.4% of the total increase in state tax revenue compared to the same period last year. This growth is particularly notable given the geopolitical tensions impacting the global economy, such as the ongoing conflict between Russia and Ukraine and the escalating friction in the Middle East involving the United States, Israel, and Iran. These conflicts have direct consequences on international trade, most notably the closure of the Strait of Hormuz. The Strait of Hormuz is a critical global artery for oil trade. Its closure has led to:
- Numerous vessels from various nations are currently immobilized in these waters.
- The resulting shortage of suppliers threatens domestic oil stability and can severely disrupt national economies.
- Crude oil prices are climbing due to the restricted access to this vital trade route.
The Minister of Finance has assessed that the Indonesian economy remains on an upward trajectory. The surge in consumption-based tax revenue (VAT and Luxury Goods Tax) serves as clear evidence that domestic economic activity and transactions remain stable despite international pressure. To maintain this momentum and safeguard against an economic crisis, the government has committed to several strategic measures:
- Keeping the state budget deficit below the 3% limit of Gross Domestic Product (GDP).
- Developing adaptive fiscal policies to mitigate the impact of rising global oil prices.
- Ensuring the national economy remains strong, stable, and resilient against global shock
The government as the state administrator, is expected to maintain stability in the Indonesian economy and prevent it from experiencing an economic crisis amidst the current global turmoil. Therefore, the government needs to formulate fiscal policies to address this situation, especially given the rising crude oil prices resulting from the closure of the Strait of Hormuz, which serves as a key access point for global crude oil trade.
By Tommy HO – Managing Partner
