Adjustment of Value Added Tax Policy in the Law on Harmonization of Tax Regulations.
In order to increase Indonesia’s sustainable economic growth and support the acceleration of economic recovery, and optimizing state revenues to finance national development independently towards fair Indonesian society, affluent and prosperous, it takes various efforts from the Government to make adjustments to fiscal policy. The ratification of the Law on the Harmonization of Tax Regulations (HPP Law) Number 7 of 2021 some time ago became one of the Government’s steps to support fiscal policy in order to achieve an increase in the tax ratio.
HPP Law changes the provisions of various tax laws, including the tax policy on Value Added Tax (VAT) which includes changes to the VAT rate, reduction of the exemption of VAT objects, and the imposition of Final VAT.
- Changes in VAT Rates
The Government changes the VAT rate in stages, for 11% (eleven percent) which is effective on April 1, 2022 and 12% (twelve percent) which takes effect no later than January 1, 2025.
The following table is the comparison of VAT rate as per previous regulation with the rate as per HPP Law:
Previous Rates | HPP law |
10% | a. 11% effective on the 1st April 2022; b. 12% will take effect no later than 1st January 2025. |
- Reduction of VAT object exemptions
In addition to the increase in VAT rates, there is also the elimination of VAT exemptions for several commodities. The following table compares the previous regulation with the HPP Law regarding changes to some commodities that are exempted from VAT:
Commodities | Previous Regulations | HPP Law |
Mining products or drilling results taken directly from the source | Exempted from VAT | Removed |
Basic necessities that are needed by many people | Exempted from VAT | Limited exemption |
Food and drinks served in hotels, restaurants, food stalls, and the like, including food and drinks, whether consumed on the premises or not, including food and beverages delivered by catering businesses | Exempted from VAT | Exempted from VAT |
Money, gold bars and certificates | Exempted from VAT | Exempted from VAT |
Medical health services | Exempted from VAT | Limited free |
Social services | Exempted from VAT | Limited free |
Mail delivery service with postage | Exempted from VAT | Removed |
Financial services | Exempted from VAT | Limited exemption |
Insurance services | Exempted from VAT | Limited exemption |
Religious services | Exempted from VAT | Exempted from VAT |
Education services | Exempted from VAT | Limited exemption |
Arts and entertainment services | Exempted from VAT | Exempted from VAT |
Broadcasting services that are not advertising | Exempted from VAT | Removed |
Public transportation services on land and water, as well as domestic air | Exempted from VAT | Limited exemption |
Labour services | Exempted from VAT | Limited exemption |
Hospitality services | Exempted from VAT | Exempted from VAT |
Services provided by the Government in the context of running the Government in general | Exempted from VAT | Exempted from VAT |
Parking services | Exempted from VAT | Exempted from VAT |
Public telephone service using coins | Exempted from VAT | Removed |
Money transfer service by postal money order | Exempted from VAT | Removed |
Catering services | Exempted from VAT | Exempted from VAT |
- Final VAT Imposition
The HPP Law also regulates the imposition of Final VAT to provide convenience and simplification of tax administration in terms of collecting and depositing VAT made by Taxable Entrepreneurs (PKP). This Final VAT scheme is imposed to the following Taxable Entrepreneurs (PKP) who:
a) has business circulation in 1 (one) financial year does not exceed a certain amount;
b) conducts out certain business activities; and/or
c) performs the delivery of certain taxable goods and/or certain taxable services.
Taxable Entrepreneurs (PKP) with these three criteria can collect and deposit VAT payable on the submission of BKP/JKP with a certain amount. The provisions regarding the qualifications of certain taxable goods and/or certain taxable services that are subject to Final VAT will be further regulated by the Government.
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