Is the Ujrah Fee Subject to VAT? Examining the Important Decision in the Sharia Insurance Dispute at the Tax Court

A Strong Lead in Tax Litigation and VAT Interpretation on Ujrah

A strong lead in tax litigation: The Sharia insurance industry faces a pivotal interpretation regarding VAT on ujrah (management fees). Tax authorities often separate the operator function from risk underwriting to categorize management fees as taxable services. However, Tax Court Decision Number PUT-014353.16/2021/PP/M.IA Year 2024 provides fundamental clarity on the legal standing of ujrah as an integral part of insurance services exempt from VAT.

The Conflict Centered on the Respondent's View and Accounting Separations

The conflict centered on the Respondent's (DGT) view that in Sharia insurance, the Taxpayer acts merely as an operator receiving ujrah. Citing Article 4A paragraph (3) letter e of the VAT Law, the DGT argued that only underwriting services are exempt, while management services are taxable. Conversely, the Petitioner emphasized that under the Insurance Law and DSN-MUI Fatwas, Sharia insurance is a single business unit where ujrah is a component of the premium/contribution price, inseparable from the insurance service itself.

The Board of Judges Legal Considerations on Sharia Insurance Responsibilities

The Board of Judges agreed with the Petitioner, emphasizing that Sharia insurance companies still bear the responsibility for benefit payments, thus acting as more than mere operators. While ujrah is recorded separately for Sharia transparency, legally it is embedded in life insurance services, which are non-taxable. This resolution confirms that accounting separations do not change the essence of a transaction into a taxable service. The court subsequently cancelled the VAT correction on ujrah.

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