Beware! Installation Services May Face Final Tax if Your Vendor Holds a Construction Certificate

BUT NC Tax Dispute: Submarine Cable Installation and Construction Service Classification

The tax dispute between BUT NC and the Directorate General of Taxes (DGT) intensified due to differing classifications of submarine communication cable (SKKL) installation for the Indonesia Global Gateway (IGG) project. The core of the conflict lies in determining whether the work constitutes "Underwater Work" subject to Article 23 Income Tax, or "Construction Services" subject to Final Income Tax under Government Regulation (PP) No. 51 of 2008. The DGT issued a positive correction after discovering that the service provider, PT ITI, held a construction business qualification certificate (B2) issued by the LPJK.

Conflict of Arguments: Physical Structure vs. Vendor Status

BUT NC argued that cable laying is not construction work as it does not create a new physical structure and falls under the Ministry of Transportation's jurisdiction rather than PUPR. However, the DGT asserted that under PMK-141/PMK.03/2015, installation services provided by construction entities are explicitly excluded from Article 23 Income Tax and fall into the Final Tax regime. The integrated nature of the work (design, procurement, and installation) further strengthened the DGT's position that this constitutes a unified construction execution service.

Tax Court Decision: The Precedence of Vendor Certification

The Tax Court Judges ultimately aligned with the tax authority and rejected BUT NC's appeal. The Judges emphasized that the vendor's formal status as an LPJK certificate holder is the primary determinant in this tax classification. This ruling reaffirms that the tax subject's characteristics (the vendor) can dictate the type of tax withholding, regardless of technical debates over the definition of the work outside of tax law. Consequently, taxpayers must be more diligent in reviewing vendor profiles and certifications before determining the appropriate tax withholding.