Recharacterization of Custom Packaging Procurement as Article Twenty-Three Printing Services: PT PL Case Study

The Directorate General of Taxes (DGT) established a correction to the Article 23 Income Tax base regarding the procurement of label stickers and packaging cartons by PT PL, deeming them to contain elements of printing services under PMK 141/PMK.03/2015. The dispute centered on whether the transactions constituted a pure purchase of goods (trading) or the provision of services subject to mandatory tax withholding.

During the Proceedings PT PL Argued That the Transactions Were Purely Material Purchases From Manufacturers

During the proceedings, PT PL argued that the transactions were purely material purchases from manufacturers, where the molding or printing process was an integral part of the production line rather than a custom service. However, the Respondent maintained that since the items were produced based on specific designs and technical requirements from PT PL, the substance was a printing service. Furthermore, the Respondent highlighted the lack of separation between material and service values in the supplier's invoices.

The Board of Judges in Its Legal Consideration Emphasized That According to Ministerial Regulations

The Board of Judges, in its legal consideration, emphasized that according to Article 1 paragraph (6) letters ay and t of PMK 141/2015, the production of goods based on specific orders constitutes printing services. Since PT PL failed to provide supporting evidence showing the separation of material and service values as required by Article 1 paragraph (4) letter b of PMK 141, the entire gross value was ruled as an Article 23 tax object. Regarding courier services, the Board also opined that the substance is identical to expedition services, which are taxable objects.

This Decision Reinforces the Importance of Documentation Formality in Transactions Involving Services

This decision reinforces the importance of documentation formality in transactions involving services. A Taxpayer's failure to separate material and service values in invoices or contracts will lead to taxation on the total gross value. Consequently, manufacturing companies must be more meticulous in drafting procurement contracts for custom goods to avoid recharacterization as services by tax authorities.