Hence, countries all over the world have created tax systems with which individuals, companies, and investors must comply. These tax systems are to generate revenue for the countries’ respective governments.
Taxes which are typically in most countries include:
- customs and excise tax,
- 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 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% 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 follows the accrual principle, requiring collection at the time of delivering taxable goods and services. Delivery occurs when ownership and risks of goods transfer, and when one can reliably measure service delivery income.
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 and filing must be 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 the 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 jewellery,
- 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
3. VAT Refunds
VAT refunds also claimably 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 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 then need 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:
- An additional source of income
Although, taxes are one of the main contributors to the government’s income VAT is one of the primary contributors to Indonesia’s economic growth. The revenue which has been generated through VAT has over the years been channelled towards the growth of various sectors of the economy such as agriculture, manufacturing, health, and technology, among others.
- A key contributor to Gross Domestic Product (GDP)
The large population of Indonesia brings about a high consumption rate which in turn contributes to a stable revenue base due to the VAT imposed on products.
- Easy integration into global trade regulations
VAT has been globally accepted as a taxation system. The use of VAT has made it easier for Indonesia to become integrated into global trade practices, rules, and regulations. It has also helped greatly in solving the issue of the fiscal deficit in Indonesia.
- Reduced barriers for imports & exports
VAT has also greatly reduced barriers to both the importation and exportation of goods and services alike. This in turn has fuelled international trade in Indonesia and led to the creation of stronger incentives for businesses to control costs.
Items Unaffected by Value-Added Tax in Indonesia
Several goods and services are exempted from VAT in Indonesia. Exempted goods include:
- Gold bars Securities Ores – copper, silver, tin, gold & iron
- Geothermal energy
- Crude oil
- Natural gas
- Gravel
- Sand
- Rice
- Salt
- Corn
- Soybeans
- Coal
- Sago F&B served in hotels & restaurants
Services which are exempt from VAT in Indonesia include:
- Education
- Medical & Health
- Public transportation
- Art & Entertainment
- Insurance
- Manpower
- Broadcasting (not advertising)
- Food & Catering
- Public telephone
How to Stay Tax Compliant in Indonesia?
Also, it is necessary for individuals and companies planning to set up businesses in Indonesia to be fully aware of the VAT system in place. However, failure to comply with VAT laws is a tax crime in Indonesia and is punishable by law.
Businesses must also be always legally compliant with VAT filing in Indonesia. The provision of false information will cause severe punishments.
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.
FAQs
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.
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