Countries all over the world have created tax systems with which individuals, companies, and investors must comply. These tax systems are intended to generate revenue for the countries’ respective governments.
Taxes which are typically imposed in most countries include:
Indonesia’s tax system contains a wide variety of taxes imposed on individuals, goods, and companies. One such tax is Value-Added Tax (VAT).
What is Value-Added Tax in Indonesia?
Value added tax (VAT) is the consumption tax imposed on each production stage of both goods and services until the final product sales. The usual VAT rate in Indonesia is 11% and is imposed on most goods and services in Indonesia.
Business owners in Indonesia must be fully aware of the VAT system as it affects their business activities all over the country. There are 3 components for VAT:
1. VAT Collection
VAT collection is based on the accrual principle which states that VAT must be collected at the time of delivery of taxable goods and services. Delivery refers to the transfer of ownership and risks of goods and takes place when service delivery income can be reliably measured.
Income or receivables are acknowledged when a transaction occurs even if a payment has not yet been received. Recognition of revenue or receivables is acknowledged by the issuance of a commercial invoice, which serves as a source document for this recognition and a basis for its recording.
2. VAT Filing
VAT filing in Indonesia is to be completed monthly. The payment must be made, and filing must be done on or before the last day of the month following the taxable delivery.
According to the Directorate of General Taxes, tax bases may include any of following:
3. VAT Refunds
VAT refunds may also be claimed in Indonesia. It is the sole responsibility of the Directorate of General Taxes to make decisions regarding VAT refunds. Such decisions usually depend on the VAT audit which is conducted within 12 months of receipt of refund applications.
Applications may also be approved if there are no decisions made by the DGT. After the application, companies are then required to submit supporting documents within a month to the Directorate of General Taxes.
Why Indonesia Requires Value Added Tax
The introduction of VAT in Indonesia has brought about many benefits to the country. Some of the benefits are:
Items Unaffected by Value Added Tax in Indonesia
Several goods and services are exempted from VAT in Indonesia. Exempted goods include:
Services which are exempt from VAT in Indonesia include:
How to Stay Tax Compliant in Indonesia?
It is necessary for individuals and companies planning to set up businesses in Indonesia to be fully aware of the VAT system in place. Failure to comply with VAT laws is a tax crime in Indonesia and punishable by law.
Businesses must also be always legally compliant with regard to VAT filing in Indonesia. The provision of false information will cause severe punishments to be imposed.
Although it may appear to some that VAT is a burden in and of itself, it is important for the economy of any country including Indonesia by contributing to the country’s economic growth and facilitating the conducting of business activities there.
Indonesia has the biggest economy in South East Asia, this means that there is potential in the economic growth. Thus, Indonesia has a wide range of goods and services along with better standards of living.
In the city of Jakarta and Bali, there is a large expat community as it is popular amongst tourists and travellers alike.
Late returns or payments may subject the individual to a 2% surcharge of the amount of VAT due or a fine of IDR 500,000. In the case of serious fraudulent activates, criminal liabilities may be applicable.
VAT is a crucial component of revenue generation for any country’s economy. Its proper enforcement can bring about significant growth to the economy. The VAT which has been collected by the Indonesian government has similarly caused economic growth to take place. This economic growth has in turn encouraged many people to choose to start a company of their own in Indonesia.
For most who live in Indonesia today, the cost of VAT is affordable. Thus, most goods and services are affordable as well. Therefore, the cost of living in Indonesia is not excessive because of the reasonable cost of VAT.