Custom Design Reclassification and Article Twenty-Three Printing Services Disputes: PT PL Case Study

The Director General of Taxation (DGT) performed a correction on the procurement of production materials, such as sticker labels, cartons, and service tags, considering them objects of Article 23 Income Tax under printing services as per PMK 141/2015. This dispute focuses on the boundary between goods procurement (trading) and service provision involving modification or specific designs from the buyer.

In the Hearing PT PL Argued That the Transactions Were Purely the Purchase of Production Materials

In the hearing, PT PL argued that the transactions were purely the purchase of production materials from manufacturers, where these items were stock used for lubricant packaging. However, the Respondent (DGT) maintained the correction, arguing that these items were produced based on specific designs and technical specifications owned by the Petitioner, making the economic substance a printing service or promotional media creation.

The Board of Judges Opined That in Transactions Where the Vendor Provides Raw Materials

The Board of Judges opined that in transactions where the vendor provides raw materials but the buyer provides the design or template, the transaction meets the criteria of a service as regulated in Article 23 paragraph (1) letter c number 2 of the Income Tax Law jo. PMK 141/2015. Since the Petitioner could not provide a separation of material value and service value in the contract or invoice, the Board decided the entire gross value remained an object of Article 23 Income Tax withholding.

The Implications of This Ruling Emphasize That Taxpayers Must Be Meticulous in Documenting

The implications of this ruling emphasize that Taxpayers must be meticulous in documenting goods procurement involving custom designs. If there is no separation of value between materials and services (moulding/printing), the DGT has a strong basis to impose Article 23 Income Tax on the total transaction value. This serves as a vital precedent for manufacturing companies with numerous packaging vendors using specific specifications.