Well crap, I just hit level 12 and then noticed there is a level cap (yeah I do not read much upon games during the hype phase)..

For some reason this is a complete game killer for me when I hit caps, it takes alot of fun out of the games for me, during in development I remember there was a level cap of 4 which I hit pretty early and I just closed down the game, uninstalled it then and there and had not played it until now, same thing is happening now at level 12 cap.
It is a good game with a good storyline so it is a shame.

Does anyone know if they intend to increase this cap later or is modding the only option?

In D&D, getting to level 12, you become a rather VERY strong character, reaching beyond that, you become something as strong as a GOD and thus, for the story so far it would be irrelevant.

See this for more info from the devs : https://www.pcgamer.com/baldurs-gate-3-expansion-interview/

"Vincke said that he would find it "very hard" to make an adventure that takes players from level 12 to level 20, because in D&D, those levels start awarding players with godlike powers"

What? Why cap the players? That's ridiculous. Why make your game so big that people can leel up to the cap long before the end of the game? In D&D 20 was always considered to be the player cap because above 20 was where the Godlike powers start to really manifest. Lazy devs "can't think of a way to challenge players" but make a bloated campaign that awards too much experience if you can reach the level cap 2/3rds of the way in or earlier.

That is quite an incompetent answer from Vincke imo since pen and paper do it easy and other games, f.e Pathfinder WotR.

Sure a character is strong at level 12, but he is no stronger than his surroundings, level 12-20 is not even close to rival a god in power. Having said that, I suppose it all depends on your GM.

Sounds like an answer that means, "it is so difficult we will have to do it through expansions with increments of 1-2 levels per".

BG3 uses the 5th edition of D&D. Kingmaker and Wrath of the Righteous uses the Pathfinder system, which is an evolution of D&D 3rd edition. On the other hand, BG1 and BG2 used AD&D 2nd Edition. That's why I wouldn't compare these games with each other.
Vincke also said that it would be hard for them to introduce some of the high-level powers and spells into the game in a way that makes sense without nerfing them.

True, the system between Pathfinder WotR and BG3 is different however the feats/class powers are similar, spells have existed throughout most editions, so I would say these 2 games are comparable.
2nd edition stuff is I agree another category though.

I have yet to see an rpg that includes all spells from dnd, so having to skip some spells or nerf them is not much of an issue.

Respecing is a thing in this game. If you are bored with your current class you can try out a different one or build a multiclass character all without losing story progression. Tier 4 5e powers can get a bit ridiculous, true polymorph and Wish come to mind. Also BG 1 only went to level eight and most 5e official modules cap out at level 12 or 13.

Yes, I have used the respec part, I am not bored with the class, the problem is lack of character building progressing further in the game since I reached max level, that is where the problem lies for me, my character has stopped progressing.

I know about the limitations of some of the older games, that was equally disappointing then as it is now, I almost never play official dnd modules, they are too rigid imo.

I agree, wish is a spell that is hard to fully implement, however in 5e it is easier than in earlier editions since they "set some ground rules" or "limitations" if you would call it.

This was not my intention to call forth a discussion on the merits or comparison of having a cap at level 12, for me personally it ruins the gameplay and I was wondering if anyone knew about any plans of increaseing it in the future (i.e has Larian given out any info), but having read what Mazamune posted about it here above I am pretty sure this is future expansions/DLCs related reasons for capping at 12.

Dunno why anyone is upset about this. There will be mods and cheats galore to manipulate the game any way you want.