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.
Table of Contents
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.
Impactful Changes: VAT Rate Adjustments under HPP Law
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.
Comparative Analysis: Previous Rates vs. HPP Law
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% |
|
Restructuring VAT Exemptions for Increased Revenue
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:
Revised VAT Exemptions
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 |
Streamlining Tax Administration: Final VAT Scheme
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:
Eligibility Criteria for Final VAT Imposition
- has business circulation in 1 (one) financial year does not exceed a certain amount;
- conducts out certain business activities; and/or
- performs the delivery of certain taxable goods and/or certain taxable services.
Advancing Fiscal Policy through VAT Adjustment
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.
If you need assistance or expert guidance regarding VAT Adjustment in Indonesia, look no further than SW Indonesia. Our team of experienced professionals specializes in navigating the intricacies of fiscal policy and tax regulations. We are here to provide comprehensive support and tailored solutions to ensure your business thrives amidst these changes. Contact us today at +62 2993 2132 to discover how we can help you optimize your VAT strategy and maximize your potential in Indonesia’s evolving economic landscape.
