Value Added Tax (VAT)

Basic Concept and Characteristics of VAT

Introduction to VAT

Value Added Tax (VAT) (Pajak Pertambahan Nilai / PPN) is a tax imposed on the consumption of goods and services within the customs area (daerah pabean). VAT is characterized as an indirect tax, meaning the economic burden of the tax can be shifted from the seller (who collects the VAT) to the buyer (as the final consumer).

• Collection Mechanism: VAT is collected at every stage of the production and distribution chain, from the producer to the final consumer. A Taxable Entrepreneur (PKP) (Pengusaha Kena Pajak) collects VAT from the buyer and remits it to the state treasury.

• VAT Rate: Based on Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP), the current applicable VAT rate is 11%.

• How to Calculate VAT: VAT is calculated by multiplying the VAT rate by the Tax Base (DPP) (Dasar Pengenaan Pajak).

  Formula: VAT= VAT Rate X Tax Base

  Example: If the price of goods is IDR 1,000,000, the VAT is 11%×IDR 1,000,000=IDR 110,000. Thus, the total amount the buyer must pay is IDR 1,110,000.

Tax Subjects of VAT

The Tax Subjects (Subjek PPN) are the parties related to the VAT tax obligation.

• Taxable Entrepreneur (PKP): The party that delivers Taxable Goods (BKP) (Barang Kena Pajak) or Taxable Services (JKP) (Jasa Kena Pajak) and has the obligation to collect, remit, and report the VAT.

• Buyer/Recipient of Goods and Services: The party that bears the VAT burden as the final consumer.

Tax Objects of VAT

The Tax Objects (Objek PPN) are the goods and services subject to VAT.

• Taxable Goods (BKP): Both tangible and intangible goods subject to VAT, such as electronic goods, motor vehicles, and manufactured products.

• Taxable Services (JKP): Any service activity based on a binding agreement or legal act that makes a good, facility, or convenience available for use, including telecommunications services, hotel services, and construction services.

VAT Exemptions

Not all goods and services are subject to VAT. Below are some examples of goods and services that are excluded from VAT (dikecualikan dari PPN):

• Goods: Basic necessities (rice, corn, sago, soybeans), food and beverages served in restaurants/hotels, gold bullion, and mining or drilling products.

• Services: Medical health services, social welfare services, stamped mail delivery services, financial services, insurance services, educational services, arts and entertainment services, non-advertising broadcasting services, public transportation services, hotel services (including apartments and boarding houses), and parking space provision services.

When VAT is Due (Saat Terutang PPN)

The VAT Due Date (Saat Terutang PPN) is the moment when the VAT payment obligation arises. This moment occurs at the time of:

• The delivery of BKP or JKP.

• The import of BKP.

• The export of tangible or intangible BKP, and JKP.

• The delivery of BKP made during transit, such as in the case of installment sales contracts.

• The receipt of payment, in the case of a down payment (uang muka) or installment payment (termin).

Place Where VAT is Due (Tempat Terutang PPN)

The Place Where VAT is Due (Tempat Terutang PPN) is the location where VAT must be collected and remitted, which is the residence or domicile of the Taxable Entrepreneur (PKP), or another location designated by the Director General of Taxes. In cross-border transactions, such as imports, the place where the VAT is due is at the place where the goods are brought into the customs area.

Difference between VAT, PPh, and PPnBM

Special VAT Transactions

Some transactions are not subject to VAT even though they involve the delivery of goods or services. This is usually due to social or economic reasons. Some examples are:

• Receipt of donations: Donations received by religious or social institutions are not subject to VAT.

• Non-formal educational services: Services provided by non-formal educational institutions that have been recognized by the government, such as skill courses, are not subject to VAT.

• Delivery of goods or services not within the scope of business activity: The delivery of personal assets by an individual who is not a PKP, such as the sale of a private car, is not subject to VAT.