Indonesia Tax Reform: World Bank Urges Indonesia to Cut VAT Threshold to Rp 500M
The World Bank has recommended that Indonesia lower its VAT registration threshold from IDR 4.8 billion to IDR 500 million to improve tax collection. The current high threshold is blamed for creating structural distortions and limiting the country's tax-to-GDP ratio.
Why it matters
Lowering the threshold could significantly broaden the tax base and increase government revenue, though it may increase the administrative burden on small businesses.
If adopted, the policy shift would require any business generating at least IDR 500 million in annual turnover to register as a PKP, and thus collect Value-Added Tax (VAT) on sales, and remit the revenue to the state treasury.
In its report titled Indonesia: Unlocking Businesses' Tax Potential for Growth (July 2026 edition), the Washington-based lender underscored that Indonesia's current threshold of IDR 4.8 billion is one of the highest in the world relative to national income.
The current limit stands at nearly 70 times Indonesia's per capita GDP, and therefore significantly exceeding benchmark standards across middle-income ASEAN peers and Organisation for Economic Co-operation and Development (OECD) jurisdictions.
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