Value Added Tax (VAT) in Indonesia

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).

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:

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.

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:

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.

The introduction of VAT in Indonesia has brought about many benefits to the country. Some of the benefits are:

Several goods and services are exempted from VAT in Indonesia. Exempted goods include:

Services which are exempt from VAT in Indonesia include:

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.