An Insight into the VAT System in Indonesia
History of Value Added Tax in Indonesia
VAT was first introduced into the world in the 1950s but was confined to only a few countries. It was in the late 1960s that most countries considered adopting it. Indonesia adopted the VAT system in 1984 to minimize tax evasion by both individuals and companies as well as to create transparency and uniformity in the tax payment process. The adoption of VAT brought with it the enactment of the VAT law in the Indonesian constitution. When the VAT law in Indonesia was enacted in 1984, the standard VAT rate was set at 10%. The law, however, also stated that the rate was subject to change depending on government regulations. In case changes are to be made, the rate may reach a minimum of 5% and a maximum of 15%. The VAT law also set the VAT rate on the export of taxable tangible and intangible goods as well as export of services at 0%. Since its enactment, the VAT law in Indonesia has not changed and is not expected to change in the near future. This is because of the government’s efforts to maintain a conducive environment for the conducting of business activities by both individuals and companies alike. Doing so is also a way of making the tax burden of tax-paying companies and individuals more affordable.
Value Added Tax (VAT) is typically due on events involving the transfer of taxable goods or the provision of taxable services in the Indonesian Customs Area. VAT is an indirect tax imposed on taxable goods and/ or services and due on the following taxable events, among others,
- Local delivery of taxable goods and/or services
- Import and export of taxable goods
- Consumption of services and/or intangible goods from offshore within the Indonesiancustomsterritory
- Export of taxable goods (tangible and intangible) by a taxable enterprise.
- Export of taxable services by a taxable enterprise.
The VAT obligations arise upon the above deliveries with the value exceeding Rp 4.8 billion per annum.
The delivery of taxable goods is defined very broadly; it includes the following:
- Deliveries of a title to taxable goods according to an agreement;
- Transfers of taxable goods according to a hire-purchase or a finance-lease agreement;
- Deliveries of taxable goods to an intermediary trader or through an auction official;
- Own-use and/or free gift of taxable goods;
- Remaining taxable goods in the form of inventories and/ or assets, which were originally not for sale, upona company’s dissolution;
- Deliveries of taxable goods within a company (e.g., between branches, or between the head office and its branches) unless the company, subject to the DGT’s approval, centralises its VAT reporting;
- Deliveries of taxable goods on consignment;
- Deliveries of taxable goods by a taxable entrepreneur in the framework of sharia-based financing, whereby the deliveries are deemed to take place directly from the taxable entrepreneur to the party in need of the taxable goods.
Rate & base
The VAT rate is typically 10%. This may be increased or decreased to 15% or 5% according to a government regulation. However, VAT on the export of taxable tangible and intangible goods as well as export of services is fixed at 0%. Certain limitations for the zero-rated VAT apply to export of services.
VAT is calculated by applying the VAT rate to a relevant tax base. In most cases, the tax base is the transaction value agreed between the parties concerned. For certain events or situations, other criteria must be used as the tax base, including:
- Market value for transactions between related parties, remaining inventories of taxable goods upon a company’s dissolution, and sales of (non-inventory) assets originally not for sale;
- Cost of sales (selling price minus gross margin) for own- use or free gifts and internal deliveries of taxable goods (e.g., between branches, or from the head office to branches);
- Auction price for deliveries of taxable goods through an auction officer;
- Agreed price for deliveries of taxable goods through an intermediary trader;
- Average result per film for movies;
- Rp 12 million per copy of imported movies;
- 20% of total costs incurred or paid, exclusive of the acquisition price of land, for the self-construction of a building;
- Retail selling prices for deliveries or imports of tobacco products;
- 10% of the actual billing for package shipment services;
- 10% of the actual billing for tour and tourism agency services whose deliveries are not based on commissions;
- 20% of selling price on the deliveries of gold jewellery, including services carried out by the factory in relation to gold jewellery;
- 10% of the actual billing on the deliveries of freight forwarding services in which billing includes freight charges;
- 100/110 of the Government subsidy value and 100/110 of the highest retail price determined by the Minister of Agriculture for deliveries of certain fertilizer for agricultural sector.
By law, all goods and services, unless otherwise stated, constitute taxable goods or taxable services. The legal negative list sets out which goods and services are categorised as non-taxable with certain exceptions, as follows:
A VAT invoice is an instrument to levy VAT (for the seller) and to claim VAT credit (for the buyer).
The format and contents of a VAT invoice must follow guidelines set by the ITA. Failure to meet the guidelines will cause the VAT invoice to be considered as an Incomplete VAT Invoice and thus subject to penalties for the seller and disallowed as credit for the buyer.
A VAT Invoice must be issued at one of the following events:
- Upon the delivery of taxable goods and/or services; or
- When payment is received, if the payment occurs before the delivery of taxable goods and/or services; or
- When a progress payment is received, if the work is delivered on a phase basis; or
- Upon other defined events as determined by MoF.
VAT Invoice is required to be produced through an electronic system (e-VAT Invoices) designated by ITA, including generating replacement or cancellation of VAT invoices.
VAT invoices must bear Rupiah currency, electronic signature, and a VAT serial numbers. VAT-able entrepreneur must file application to the ITA to request for this predetermined range of VAT serial numbers. Prior to submitting such request, the VAT-able entrepreneur must first request for Activation Code and Password from the ITA, as these will be required when filing a request for VAT invoice serial numbers.
Retail entrepreneurs and entrepreneurs that issue documents treated as VAT invoices are exempted from the obligation to issue e-VAT invoices.
Certain documents are treated as VAT invoices. These include:
- Export Declaration on taxable goods, taxable services and
- intangible goods (with accompanying invoice);
- Import Declaration (with accompanying payment slips);
- Goods Delivery Order (SPPB) from BULOG/DOLOG for wheat delivery;
- Delivery Note (PNBP) issued by Pertamina;
- Invoice issued by a Telecommunication Company;
- Ticket, airway bill or delivery bill issued for domestic air transport services;
- Service Delivery Note issued for port service;
- Invoice issued by an Electricity Company
- Tax payment slip (SSP) for payment of self-assessed VAT on the use of offshore intangible goods and/or services;
- Invoice issued by a Drinking Water Company for delivery of taxable goods or services;
- Trading confirmation from stock brokerage company;
- Invoice issued by a Bank for delivery of VATable services;
- Tax payment slip (SSP) for the payment of VAT on delivery of taxable goods through auctioneer accompanied with the Minutes of the Auction;
- Document used for ordering tobacco products excise tape (CK-1Document).
Goods produced from mining or from drilling that are extracted directly from the source such as:
- crude oil;
- natural gas, excluding natural gas such as LPG that is ready to be consumed directly by the public;
- geothermal energy;
- asbestos, slate, semiprecious stone, limestone, pumice, gemstone, bentonite, dolomite, feldspar, halite, graphite, granite/andesite, gypsum, calcite, kaolin, leucite, magnesite, mica, marble, nitrate, obsidian, ochre, sand and gravel, quartz sand, perlite, phosphate, talc, fuller’s earth, diatomaceous earth,clay, alum, trass, jarosite, zeolite, basalt, and trachyte;
- coal not yet processed into coal briquettes; and
- iron ores, tin ores, gold ores, copper ores, nickel ores, silver ores, and bauxite ores.
Basic commodities vital to the general public such as:
- rice and unhusked rice-grains; b. corn;
- salt for consumption;
- meat, namely uncooked fresh meat, packaged or not packaged, but having gone through processes of slaughtering, skinning, cutting, cooling, freezing, salting, liming, pickling, preservation by other methods, and/or boiling;
- eggs, namely unprocessed eggs, including cleaned, salted, or packaged eggs;
- milk, namely animal’s milk that has gone through a cooling or heating process, containing no additional sugar or other ingredients, and/or packaged or unpackaged;
- fruit, namely picked fresh fruit, including that which has gone through washing, sorting, peeling, cutting, slicing, grading, and/ or packing or non-packing processes;
- vegetables, namely fresh vegetables that are picked, washed, drained, and/or stored at low temperature, including chopped fresh vegetables;
- ingredients; and m.sugar for consumption.
Food and beverages served in restaurants, including food and beverages delivered by catering businesses; and
Money, gold bars, and commercial paper.
- medical health services;
- social services, for example orphanages and funeral services;
- mail services using stamps;
- financial services;
- insurance services;
- religious services;
- educational services;
- art and entertainment services;
- broadcasting services which are not used for advertising;
- public transportation on land and water and domestic air transport that is an integral part of international air transport;
- manpower services;
- hotel services;
- public services provided by the government;
- parking area services;
- public telephone services using coins;
- remittance services by money orders; and
- food or catering services.
Companies and individuals designated as taxable enterprises (PengusahaKenaPajak/PKP) are required to report their business activities and settle the VAT liabilities on these every month. VAT is usually to be accounted for on a decentralization basis. As a result, a company carrying out business activities through a number of business units (branches) in the jurisdiction of different district tax service offices (Kantor PelayananPajak/KPP) must register each unit with the relevant KPP. It is in this context that internal deliveries of taxable goods within a company are subject to VAT.
However, a company may centralise its VAT reporting and exclude internal deliveries of taxable goods from the scope of VAT by submitting a written notification to the DGT. Companies registered with the following KPP are required to centralise their VAT reporting:
- KPP for large taxpayers/LTO;
- KPP for foreign investment companies (Penanaman Modal Asing/PMA);
- KPP for certain foreign companies and foreigners (Badandan Orang Asing/Badora);
- KPP for listed companies (Perusahaan Masuk Bursa/ PMB); and
- KPP for medium-sized taxpayers/MTO.
VAT liabilities are typically settled by using an input-output mechanism. A vendor of taxable goods or taxable services must typically charge VAT to the buyer. From the vendor’s perspective, it is an output tax. The buyer has to pay the VAT to the vendor. From the buyer’s perspective, it is an input tax. To the extent that the goods or services are necessary for running the buyer’s business, the input tax can be credited against the buyer’s own output tax. If the accumulated output tax for a particular month exceeds the accumulated input tax for the same period, the taxpayer in question has to settle the difference by the end of the following month and prior to the VAT return filing deadline. If, however, the accumulated input tax for a particular month exceeds the accumulated output VAT, the taxpayer may carry over the overpaid VAT to the following months or ask for a yearly refund at the end of the book year.
Import and self-assessed VAT
Resident taxpayers receiving and utilizing taxable services and/or taxable intangible goods from offshore or from a Free Trade Zone are obliged to self-assess, report and pay 10% VAT calculated from the gross amount paid or payable. The self-assessed VAT is due when the goods or services are:
- actually used or utilized by the user;
- declared as payable by the user;
- invoiced by the service provider/seller; or
- fully or partly paid by the user.
To safeguard VAT revenues, the Government Treasurer, the State Cash and Treasury Office, Contractors of oil and gas production sharing contracts with the Indonesian Government, Geothermal Energy Contractors or License Holders (including head office, branches or units), State-Owned Enterprises and certain entities as defined by MoF regulation, are assigned to act as VAT withholding agents (VAT collectors).
Crediting input VAT
VAT must be accounted for to the DGT every month. Input tax for a particular tax period (month), in principle, must be claimed as a tax credit against the output VAT for the same tax period. However, the claim can still be made within three months of the end of the particular tax period if the input tax has not yet been expensed or if a tax audit has not yet been started.
The validity of particular tax invoices is a key to successfully claiming the input tax as a tax credit. A tax invoice must contain the following minimum information:
- the name, address and NPWP of the taxpayer delivering the taxable goods or services;
- the name, address and NPWP of the purchaser;
- the type of goods or services, the quantity, the sales price or compensation and any discounts
- the VAT that has been collected;
- the LST collected (if any) on luxury goods;
- the code, serial number and date of issue of the invoice; and
- the name and signature of the authorised signatory to the invoice.
Failure to satisfy the minimum information requirement will mean that the input tax cannot be used as a tax credit. PKPs are required to prepare its tax invoice in electronic format (electronic FakturPajak/e-FP).
A tax invoice must be issued at:
- the time of delivery of taxable goods or services;
- the time a payment is received if the payment is received prior to the delivery of taxable goods or services;
- the time a term-payment is received in the case of delivery of a part of the work phase; or
- such other time as maybe stipulated by an MoF regulation.
Excess of input VAT over output VAT can be requested for refund or carried forward without limitation.
- Claims for VAT refund can only be made at the end of a tax year, except for certain VATable entrepreneurs that are eligible to claim tax refund at each monthly period.
- A refund request usually results in a tax audit, and such reviews are very strict on the quality of documentation. It is important for taxpayers to reconcile their corporate tax returns and books for the year-end VAT Return. E-VAT invoice is not required to be attached in the VAT Return in the event of the VAT Refund request.
- The time frame to obtain a refund decision varies, depending on the category of business applying for the refund. In general, it takes 12 months from the submission of the VAT refund request for the tax auditor to issue the decision letter.
- Failure of production: For those VATable entrepreneurs that are in the pre-production stage, if they fail to commence production within 3 (three) years from when the input VAT is credited, the VAT that has been refunded must be repaid. If no refund has been made, the VAT can still be credited and claimed for refund after the initial three-year period. The extension is provided for up to 2 (two) years after the initial three-year period has elapsed.
- VAT refund for foreigners: VAT paid by foreign individuals on purchases in designated retail stores can be claimed for refund by the foreigners upon leaving Indonesia. The minimum amount for a claim is Rp 500,000.
VAT exemption facilities
The deliveries and/or import of taxable goods designated as strategic goods are exempt from VAT. The designation of strategic goods is made through a government regulation. Currently, the following goods are included:
- capital goods in the form of machinery and plant and equipment required for the manufacturing of taxable goods (please refer to page 78 on the relevant tax concession);
- animal husbandry products, including hunting and trapping, and fishery products, including the capture and cultivation of fish;
- raw hides and skins which were not tanned;
- seeds and seedlings for agricultural, plantation, forestry, farm and animal husbandry products;
- cattle, poultry and fish feed, and the raw materials for manufacturing these;
- raw materials of silver craft in the form of granules and/ or bars;
- basic flats with size 21m2 up to 36m2;
- electricity,excepthouseholdelectricityexceeding6,600 VA;
- clean water distributed through pipes by drinking water companies.
Other VAT exemption schemes
To support the achievement of certain national objectives, VAT is exempt on the imports and/or deliveries of the following taxable goods or taxable services:
- weapons, ammunition, and various other appliances for use by the armed forces and the state police;
- equipment and spare parts for providing boundary data and aerial photographs used by the armed forces;
- polio vaccines for use in the National Immunisation Program;
- general education and religious books;
- low-cost houses, low costs flats with size less than 21m2, labor low-cost accommodation, and student accommodation with certain threshold;
- services rendered for the construction of low-cost accommodations in point (e) and places of worship;
- rental of low-cost houses and low-costs flats less than 21m2;
- certain port services rendered to shipping companies that are serving international routes.
VAT not-collected facilities
Certain means of transport and related taxable services
To strengthen the national transportation industry, VAT is not-collected on the imports and/or deliveries of the following taxable goods or taxable services:
- transportation vehicles and spare parts thereof, used by the armed forces and the state police;
- ships and spare parts thereof, as well as navigational or personal safety equipment used by national commercial shipping companies, national fishing companies, national seaport operators or national river, lake and ferry operators;
- aircraft and spare parts thereof, as well as aviation and personal safety equipment, and repair and maintenance equipment used by national commercial airlines;
- trains and spare parts thereof, as well as equipment for repair, maintenance and infrastructure used by national train enterprises (Badan Usaha PenyelenggaraSaranaatauPrasaranaPerkeretaapianUmum);
- services received by national commercial shipping companies, national fishing companies, national seaport operators or national river, lake crossing and ferry operators, covering vessel leasing services, port services, and vessel maintenance or docking services;
- services received by national commercial airlines, covering aircraft leasing services, aircraft maintenance or repair services;
- train maintenance or repair services received by national train enterprises.
Other VAT not-collected schemes
VAT is also not-collected on the following events:
- the traffic of goods or services under the concessions on special projects and special zones (please refer to pages 70-78 on the relevant tax concession);
- deliveries of certain fuels for petrol-fuelled ships that transport goods to or from overseas ports;
- deliveries of anode slime to be further processed in producing gold bars.
From 1 July 2020 Indonesian value-added tax (VAT) applies to sales of digital products supplied by foreign businesses to Indonesian consumers.
Examples of these sales include downloading or streaming of apps, books, computer software, games, magazines, movies, music, and newspapers, as well as the subscription of such products. Online services such as advertising, design, marketing, and video conferencing services are also examples of digital products covered by this measure.
Overseas businesses that make sales like those described above and meet certain criteria will be appointed as VAT collectors by the Indonesian Government and be responsible for:
- charging VAT on sales of digital products
- making a monthly payment to the Indonesian Government, and
- submitting a quarterly VAT return to the Indonesian Directorate General of Taxes (DGT)
The criteria to be appointed as VAT collectors are:
- the value of transactions with buyers in Indonesia exceeds IDR 600,000,000.00 in 1 year or IDR 1,000,000.00 in 1 month; and / or
- the amount of traffic or access in Indonesia exceeds 12,000 in 1 year or 1,000 in 1 month.
The applicable VAT rate is 10 percent. This means the VAT amount on a taxable sale will be 1/11th of the price the Indonesian customer pays.
Who charges VAT
Sellers of digital products who might need to charge Indonesian VAT include:
- overseas merchants or online retailers who sell digital products to Indonesian consumers
- overseas operators of online marketplaces who supplies digital products to Indonesian consumers
- Indonesian operators of online marketplaces who supply foreign digital products to Indonesian consumers
A customer is considered Indonesian if the customer:
- provides an Indonesian billing address or mailing address for his account with the seller
- uses payment facilities such as credit or debit cards issued by Indonesian financial institutions, and/or
- places orders using Indonesian IP addresses or country calling code
Your obligations as VAT collector
An appointed VAT collector must charge Indonesian VAT on sales of digital products to Indonesian consumers.
You must begin to charge VAT on sales you make from the first day of the month following your appointment as a VAT collector.
The applicable VAT rate is 10 percent of the pre-tax amount.
The amount of VAT you collected during a month must be paid to the Indonesian Government by the end of the following month.
You are required to submit a quarterly VAT return by the end of the month following the end of the quarter.
In special cases, the Director-General of Taxes may require a VAT collector to furnish a more detailed report covering a period of one calendar year.