Crediting Input VAT on Foreign Services? Beware, the DTP VAT Facility May Forfeit Credit Rights

Tax Court Decision on Government-Borne VAT (PPN DTP) and Input Tax Crediting of PT HI

The utilization of the Value Added Tax (VAT) Borne by Government (DTP) incentive during the COVID-19 pandemic era has brought significant implications for the input tax crediting mechanism. This was confirmed in the appeal dispute between PT HI (Appellant) and the Directorate General of Taxes (Appellee) regarding a VAT correction for the July 2021 tax period.

Core Conflict and Prohibition on Crediting Government-Borne VAT

The core conflict in this case was the negative list correction on Input VAT from the utilization of Services from Outside the Customs Area (JKP LDP) amounting to IDR 1.24 billion. The Appellee made the correction because the VAT on the JKP LDP was proven to have received the DTP facility based on PMK-173/PMK.03/2021. The DGT argued that based on Article 9 paragraph (8) letter f of the VAT Law (as amended by the Omnibus Law), Input VAT for which the VAT is DTP is explicitly prohibited from being credited. Conversely, the Appellant contested the correction. The Appellant argued that DTP VAT was merely a payment mechanism, where the Government bears the VAT payable, and thus should not eliminate the Appellant's right to credit the Input VAT.

Judicial Panel Considerations and the Application of the Omnibus Law

The Tax Court Panel in Decision Number PUT-008821.16/2024/PP/M.XVIIIA Year 2025 rejected the entire appeal. The Panel affirmed that the dispute for the July 2021 tax period must be resolved using the VAT Law as amended by the Omnibus Law. The Omnibus Law, effective since November 2, 2020, added letter f to Article 9 paragraph (8) of the VAT Law. This article clearly and explicitly states that Input Tax crediting cannot be applied to the acquisition of Taxable Goods or Services for which the VAT is borne by the Government.

Legal Implications and Consequences for Taxpayers

This decision confirms that the prohibition in Article 9 paragraph (8) of the VAT Law is absolute. The taxpayer's interpretation that DTP is merely a payment mechanism cannot override the power of the regulatory text which literally prohibits the credit. Consequently, taxpayers who utilize the DTP VAT facility must accept the consequence that the Input Tax directly related to that acquisition cannot be credited in their VAT return.

A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here