Considered Final Consumption, Input Tax on Employee Welfare Facilities in the Form of Employee Housing in Remote Areas Rejected by the Tax Court

Input Tax Crediting has again become a central issue in VAT disputes, particularly those related to employee facilities in remote areas. In Decision Number PUT-010985.16/2020/PP/M.XB of 2025, the Tax Court rejected PT BSP's request to credit input tax for the acquisition of Taxable Goods (BKP) and Taxable Services (JKP) used for the construction of employee housing and kitchens.

PT BSP's argument emphasized that in remote locations, the provision of housing and supporting facilities is directly related to core business activities and is even mandatory under the Manpower Law. Without these facilities, recruiting and retaining employees is difficult, directly threatening production. However, the Directorate General of Taxes (DGT) maintained its stance on Article 9 paragraph (8) letter b of the VAT Law, which states that input tax cannot be credited for expenses not directly related to the project. The DGT categorized the construction of these facilities as expenses for employee welfare or final consumption, not inputs used in the production process to produce output subject to VAT.

In its legal perspective, the Panel of Judges adopted a strict interpretation of the VAT Law, particularly the Explanation to Article 9 paragraph (8) letter b. The Panel emphasized that facilities such as employee housing and kitchens, despite their urgency in remote locations, are fundamentally intended to meet consumer and welfare needs. The Tax Court emphasized that these expenses constitute BKP/JKP expenses that are delivered to the end consumer. Therefore, these expenses are still considered indirectly related to the delivery of BKP/JKP activities that are subject to PT BSP's VAT. This decision provides a crucial lesson for PT BSP: remote location factors or legal obligations (the Employment Law) do not necessarily change the character of expenses to a direct relationship in the context of VAT crediting. PT BSP must clearly separate PM for expenses that are essentially production inputs, from expenses that are consumptive or welfare in nature.

A comprehensive analysis and the Tax Court's ruling on this dispute are available here.