Collection of Value-Added Tax

The Value-Added Tax (VAT) Law defines a VAT Entrepreneur as an entrepreneur delivering Taxable Goods and/or Taxable Services that are subject to tax pursuant to the VAT Law. Under such Law, entrepreneurs are required to register their business for registration as VAT Entrepreneurs if they deliver Taxable Goods/Taxable Services within the customs and excises territory or export Taxable Goods, Taxable Services, and intangible Taxable Goods.

Under the Regulation of the Minister of Finance Number 197/PMK.03/2013 on the Threshold of VAT Small Entrepreneurs, it is provided that entrepreneurs with a minimum turnover of Rp4.8 billion in a Fiscal Year are required to register as VAT Entrepreneurs. However, those not yet reaching the turnover threshold may apply to register as VAT Entrepreneurs.

  1. Rights of VAT Entrepreneur in Respect of VAT

If you have been registered as a VAT Entrepreneur, you have certain rights as a VAT Entrepreneur. They are as follows, in respect of VAT:

  • Eligible to credit input/purchase VAT on Taxable Goods/Taxable Services;
  • Eligible to claim for VAT refund if input VAT is greater than output/sales VAT and entitled to VAT set-off;
  • Eligible to claim for input VAT set-off based on reports and books according to actual business conditions.
  1. Obligations of VAT Entrepreneur in Respect of VAT

Besides rights, you as a VAT Entrepreneur also have the following obligations:

  • Collect VAT and Sales Tax on Luxury Goods;
  • Pay VAT if output VAT is greater than input VAT;
  • Deposit Sales Tax on Luxury Goods on transactions that are payable;
  • File Periodic VAT Returns;
  • Issue a tax invoice for each delivery of Taxable Goods/Taxable Services.
  1. Advantages of Becoming VAT Entrepreneur

Some of the advantages of becoming a VAT Entrepreneur are as follows:

  • If a Taxpayer becomes a VAT Entrepreneur, they will be considered to have a valid legal system because they pay tax accordingly;
  • The status as a VAT Entrepreneur can earn the entrepreneur greater trust from business partners and improve their reputation;
  • Upon registration as a VAT Entrepreneur, the entrepreneur can also make sales and purchase transactions with government agencies.
  1. Consequences of VAT Entrepreneur Status

After being registered as a VAT Entrepreneur, reporting tax invoices and filing Periodic VAT Returns in a disciplined and orderly manner should be your top priority. Administrative penalties may be imposed if you fail to adhere to the VAT filing-related regulations. Furthermore, a VAT Entrepreneur may be subject to criminal penalties if they are late in issuing tax invoices and filing Periodic VAT Returns.

e-Faktur services allow you to conveniently create tax invoices online. Periodic VAT Returns can be filed using the tax services application provided by the Directorate General of Taxes (DGT) or to an Application Service Provider officially partnering with the DGT. In addition to easy process, you can upload your CSV and PDF files directly. You will also benefit from a well-ordered and easy-to-check tax payment and filing archive.

You must file your Periodic and Annual Tax Returns on time, thereby proving you are a law-abiding Taxpayer, to maintain the status as a VAT Entrepreneur.

To find out more about VAT, you can access https://pajak.go.id/index-belajar-pajak on the Value-Added Tax segment.

VAT Collection Mechanism

In general, the VAT collection mechanism is as follows:

  1. A VAT Entrepreneur delivering Taxable Goods/Taxable Services is required to collect VAT from the buyer/recipient of Taxable Goods/Taxable Services at 10% of the selling or service price, and issue a tax invoice as proof of collection;
  2. If the buyer of Taxable Goods/Taxable Services is a VAT Collecting Agent (State-Owned Enterprise, contractor and cooperation contract license holder, government treasury, and State Treasury Service Office), the VAT payable on the transaction is not collected by the VAT Entrepreneur Seller but is deposited directly to the State Treasury by the VAT Collecting Agent. Accordingly, the VAT Collecting Agent will only pay the selling price to the VAT Entrepreneur Seller, while the VAT (10%) will be deposited directly to the State Treasury;
  3. The VAT indicated in the tax invoice acts as Output VAT for the VAT Entrepreneur Seller that they have to pay (Tax Payable);
  4. When the said VAT Entrepreneur purchases/acquires Taxable Goods/Taxable Services subject to VAT, the VAT acts as Input VAT that they prepay, provided that the Taxable Goods/Taxable Services purchased are directly related to their business activities;
  5. For every Tax Period (every month), if the Output VAT is greater than the Input VAT, the difference must be paid to the State Treasury no later than the end of the following month and prior to the Periodic VAT Return being filed. On the other hand, if the Input VAT is greater than the Output VAT, the difference can be set off against the next Tax Period. VAT refund can only be claimed for at the end of the Fiscal Year;
  6. The VAT Entrepreneur is required to file their Periodic VAT Return every month to the relevant Tax Office (KPP) no later than the end of the month immediately following the Tax Period.

VAT Facility and Certain VAT Objects

The VAT facilities provided by the Government consist of:

  1. 0% tax rate;
  2. Not subject to VAT;
  3. VAT Exemption;
  4. Subject to VAT but not collected.

Certain VAT objects consist of:

  1. VAT on self-build activities (Article 16 C);

VAT on sales of assets that are not for sale originally (Article 16 D).

VAT Facility During the Pandemic

In light of the impacts of the Coronavirus Disease 2019 (COVID-19) spread, policies that ensure public health and safety as well as protect businesses remain important. For this reason, the Regulation of the Minister of Finance Number 143/PMK.03/2020 provides a VAT incentive for:

  1. Certain Taxpayers on import or acquisition of Taxable Goods, acquisition of Taxable Services, and/or use of Taxable Services from outside the customs and excises territory;
  2. Pharmaceutical Industries Manufacturers of Vaccines and/or Drugs on import or acquisition of vaccine and/or drug raw materials for the handling of COVID-19; and
  3. Taxpayers receiving vaccines and/or drugs for the handling of COVID-19 from pharmaceutical industries;

from Tax Periods April 2020 to December 2020.

Such facility applies to VAT payable on:

  1. Import of Taxable Goods needed in the handling of COVID-19 pandemic by Government Agencies/Institutions, Hospitals, or any other parties, which is not collected in accordance with the laws and regulations;
  2. Delivery of Taxable Goods and Taxable Services needed in the handling of COVID-19 pandemic by VAT Entrepreneurs to Government Agencies/Institutions, Hospitals, or any other parties, which is borne by the government;
  3. Use of Taxable Services from outside the customs and excises territory needed in the handling of COVID-19 pandemic by Certain Parties, Government Agencies/Institutions, Hospitals, or any other parties, which is borne by the government;
  4. Import of raw materials for production of vaccines and/or drugs for the handling of COVID-19 by Pharmaceutical Industries Manufacturers of Vaccines and/or Drugs, which is borne by the government;
  5. Delivery of raw materials for production of vaccines and/or drugs for the handling of COVID-19 by VAT Entrepreneurs to Pharmaceutical Industries Manufacturers of Vaccines and/or Drugs, which is borne by the government;

Delivery of vaccines and/or drugs for the handling of COVID-19 by Pharmaceutical Industries Manufacturers of Vaccines and/or Drugs, which is borne by the government.