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 customs and excise tax, value added tax (VAT), land and building tax, individual income tax, international tax agreements, luxury-goods sales tax, and withholding tax. Indonesia’s tax system contains a wide variety of taxes imposed on individuals, goods, and companies. One such tax is 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 10% 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. Thus, VAT compliance is mandatory.
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 entails the transfer of ownership and risks of goods and takes place when service delivery income can be reliably measured. With regard to the accrual system, 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. This invoice 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. VAT calculation involves applying the relevant VAT rate to its corresponding tax base. With regard to the transaction value, the tax base is agreed upon between the parties involved. According to the Directorate of General Taxes, tax bases may include any of following: 20% of total land costs, transaction market value agreed upon between parties, the agreed price of a delivery of taxable goods, the auction price of a delivery of taxable goods delivery, 10% of the billing price of deliveries of freight forwarding, 20% of the selling price of deliveries of gold jewelry, the retail selling prices of tobacco products upon either import or delivery, the cost of sales of taxable goods to be used internally or as gifts, imported movies worth at least 12 million rupiah, or 10% of the billing price of non-commission based deliveries conducted by tourism agency services.
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. Companies, however, have the right to submit their refund applications at the end of a financial year.
Of course, VAT is just one element of the complex and intricate tax system of Indonesia. It might not always be simple for one to properly understand and navigate this tax system. For this reason, we at Paul Hype Page & Co will provide you with any necessary services and assistance regarding the tax system of Indonesia. Through our assistance and feedback, you will be better able to understand your obligations as a taxpayer in Indonesia. If you would like to claim any tax incentives or exemptions, we are also able to assist you in that matter.
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.