Collection of VAT Digital Transaction Needs Additional Regulation

JAKARTA. The regulation relating to the collection of Value Added Tax (VAT) for digital transactions take effect on July 1, 2002. Yet, the Directorate General of Taxes (DGT) claimed that the collection could actually be done more quickly in August 2020, as stated by DGT in its written statement. This is because there are some technical rules that the tax authority still has to prepare. 

Some of the additional regulations are related to the criteria of business actors who are obliged to collect VAT for digital product, as well as the list of business actors appointed to be collectors. In addition, the available time lag can also be utilized by business actors both in and outside the country to set up an easy, simple and efficient payment and reporting system. 

Previously, the provisions regarding the imposition of VAT on digital transaction were contained in Minister of Finance Regulation (PMK) number 48 / PMK.03 / 2020 and Government Regulation in Lieu of Law (Perppu) number 1 of 2020.

Read: Indonesia Cuts Tariff on Corporate Income Tax and Officially Applies Digital Tax

Based on this provision, the collection, deposit, and reporting of VAT on digital products originating from abroad will be conducted by e-commerce business actors i.e. merchants/ providers of foreign services, providers of foreign e-commerce, or providers of domestic e-commerce designated by the Minister of Finance through the Director General of Taxes. The imposition of VAT on foreign digital products is officially enforced on 1 July 2020.

E-commerce business actors who meet certain transaction value criteria or the amount of traffic within 12 months are appointed by the Minister of Finance through the Director General of Taxes as a VAT collector. Business actors who have fulfilled the criteria but have not been appointed as VAT collector can submit a notification via online to the Director General of Taxes.

Just as the domestic VAT collector, the designated business persons are also obligated to deposit and report VAT. Deposit of VAT that collected from consumers must be made no later than the end of the following month. While reporting is done quarterly not more than the end of the following month after the quarter period ends.

With this regulation, all digital transactions such as online trading activities, music streaming services, movies and games applications will be the subject to VAT.

Socializing The Policy

This policy is relatively new and become an important breakthrough conducted by DGT, in taxing business actors in the network (online). During this time e-commerce transactions and other digital service services are difficult to tax because of constrained problems, one of which is the certainty of the legal entity that provides the service.

Related to this, DGT claimed that they had conducted socialization with various parties regarding this policy. The socialization was conducted with digital businesses from 11 different jurisdictions, such as the United States, Australia, China, Hong Kong, India, Britain, Japan, Singapore, Sweden and Thailand. The socialization was also attended by representatives of the American Chamber of Commerce in Indonesia, the European Business Chamber of Commerce in Indonesia, and the US-Asean Business council.