Value Added Tax (VAT) Guidelines: Indonesia

VAT imposition is triggered by events in connection with transfer of taxable goods or services within the Indonesia customs area. 

 

Taxable transactions

 

VAT taxable transfer has to fulfill the following requirements:

Delivery of taxable goods include

 

According to the law, all goods and services are VAT-able unless otherwise stated. However, there are definitive non-taxable goods and services (which constitute a negative list) which are not subject to VAT. In other words, VAT is not applicable on supply of those goods. These include basic commodities (rice, corn, sugar, etc.); mine­rals directly extracted from natural sources except coal mining (iron ore, crude oil, natural gas, etc.); food and beverages served in hotels and restaurants, gold bars, public services (medical services, postal services, social services) and financial services. 

 

The government stipulates particular goods and services to be VAT exempt, such as e.g. capital goods in the form of machinery and factory equipment that are required to produce taxable goods,  Electricity except house­hold electricity exceeding 6,600 watt, agricultural products, clean water supplied through pipes, cattle, poultry, seeds for agricultural and plantation products. 

 

In accordance with Art. 16B of the prevailing VAT Act, the government stipulates particular goods and services; and economic activities in a particular area, the VAT of which are due but not collected. These include, for exam­ple, transportation vehicles and spare parts of vehicles, used by the national armed forces; ships and spare parts of ships, 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.  

 

VAT rate is typically 10 percent applicable to the VAT base. Export of goods and service are 0 percent (there is certain limitation of export of services which is entitled to 0 percent VAT).

VAT obligations arise on VAT-able deliveries in excess of Rp 4.8 Billion per annum. If a taxpayer does not regis­ter for VAT purposes although the taxable delivery threshold is exceeded, that tax office may deem VAT entre­preneur status and issue tax assessment on the unpaid VAT as well as the applicable tax administrative penalties. 

 

A VAT entrepreneur having branches in several areas needs to register with the respective tax offices covering those particular areas. Inter branch deliveries are subject to VAT. VAT centralization arrangement is available on order to exclude inter-branch delivery from the VAT scope. For this purpose, the entrepreneur must submit written notification to the tax office headquarter. 

 

VAT must be accounted for to the tax office every month by way of monthly VAT return submission. All VAT entrepreneurs must submit the VAT return on e-filing. 

 

A supplier of taxable goods or services must collect VAT from customers. From the supplier’s perspectives, it is an output VAT, whereas from the customer’s perspectives, it is an input VAT. 

 

As long as the paid input VAT relates to customer’s business i.e. in relation to the production of taxable goods or services, the input VAT can be credited against its output VAT. If the accumulated input VAT exceeds the output VAT, the VAT overpayment can be carried forward to the next tax period or it can be asked for a refund at the end of the book year. If the accumulated output VAT for the tax period exceeds the input VAT, the difference must be paid before the VAT return filing for the tax period in question, i.e. at the end of the subsequent month.

 

Input VAT is eligible for credit if it relates to taxpayers business activity that is production of taxable goods or services. In addition, in order that the input VAT is entitled for tax credit, validity of the VAT invoice is critical. 

  

In general, taxpayers can apply for VAT refund at the end of a book year. The tax office after conducting a tax audit must issue a decision within 12 months upon the refund application. If no decision is issued, the refund request is considered granted. 

 

The VAT law also provides avenue for certain taxpayers to obtain pre-audit refund. Those taxpayers are desi­gnated by the Director General of Taxation based on taxpayer application after fulfilling certain criteria, inclu­ding timely filing of tax returns, the absence of outstanding tax liabilities and no involvement of tax infringe­ment. The tax office, however, retains the right to audit after pre-audit refund. 

The VAT law provides that VAT invoice must be issued at the time of delivery of taxable goods or services or when the payment from the purchaser is received. Certain requirements for VAT invoice are set out by VAT law. VAT invoice should use Indonesia Rupiah currency and local language. Transactions denominated in foreign currency must be converted by Ministry of Finance exchange rate applicable for the day. 

 

Failure to issue complete VAT invoice (in accordance with the VAT invoice requirements) or failure to issue VAT invoice timely will imply 1 percent penalty from the VAT base to the seller. On the other hand, the purchaser can credit the input VAT as long as the VAT invoice is not issued later than 3 month after the designated date, i.e. the date on which the VAT invoice must have been issued. 

 

The VAT invoice number is generated by the DGT based on an electronic system, commonly referred to as e-VAT invoice (e-Faktur). Each e-VAT invoice must be approved by DGT through a website governed by the GDT. In order to do so, every VAT entrepreneur must obtain electronic certificate from the DGT.