Getting Sanction of VAT on Export Straight for A Better Indonesia

Karsino Miarso, Monday, 07 September 2020

Getting Sanction of VAT on Export Straight for A Better Indonesia

There is good news in the midst of the Nation's tough test in facing the Covid-19 pandemic and the threat to an economic recession. The World Bank recently upgraded Indonesia's status to an upper middle-income country from previously a lower middle-income country. It is a long wait claimed by President Joko Widodo to be a positive step for Indonesia to get out of the middle-income trap and become a developed country by 2045. 

One of the World Bank's indicators in dividing the economic classes of each country refers to the Gross National Income (GNI) per capita. 

There are four classifications of economic status based on GNI: Low Income (USD1,035), Lower Middle Income (USD1,036-USD4,045), Upper Middle Income (USD4,046-USD12,535), and High Income (> USD12,535). 

In 2019, Indonesia's GNI per capita rose to USD4,050 from USD3,840. This achievement marks the end of Indonesia's 23-year long struggle as a lower middle-income country since 1995. Indonesia is not fast enough in moving to the next grade when compared to countries at the same level such as Brazil (20 years), Mexico (17 years), Malaysia (22 years), and Thailand (19 years). In fact, National Development Planning Agency (Badan Perencanaan Pembangunan Nasional/Bappenas) assesses that Indonesia is six-year late to get out of the middle-income trap, which according to the target should be achieved by 2030. 

Read: Pandemic, Recession, and The Fate of Tax This Year 

As citizens, we certainly deserve to be proud. However, we still have to be self-aware and not to be caught off guard about this new economic status. Because, as the opportunity to get into the next economic grade is wide-open, there will always be the risk of being flunked as experienced by Algeria, Sri Lanka, and Sudan. Especially amid the threat to a global recession that until now has hit the economies of developed countries such as the United States, Germany, France, Japan, South Korea, and Singapore. 

Export Policy 

Talking about Indonesia's dream of becoming a developed country, being independent or being able to meet domestic needs is a big issue. When looking at the economic structure of the aforementioned developed countries, manufacturing and exports are their main bread and butter. Unfortunately, Indonesia is far from the ideal word for these two indicators. The phenomenon of deindustrialization that occurred in recent decades became a big homework for this Nation. The trade deficit is the most real indicator to see the fragility of Indonesian economy. 

Interestingly, over the last few months, Statistics Indonesia (Badan Pusat Statistik/BPS) noted that Indonesia has experienced a trade balance surplus. In July 2020, Indonesia's trade balance surplus was USD3,26 billion. Unfortunately, the surplus was created not because of export growth but rather because the value of Indonesia's imports fell deeper than the export. In other words, both exports and imports plummeted amid the current pandemic and global economic crisis. These two indicators show a low domestic demand and sluggish production activities of the national manufacturing industry.  

It’s not that the government making no effort to strengthen its fragile economic structure. Various tax incentive policies and economic stimulus are continuously provided to excite the industry and improve export performance, especially in the midst of economic conditions that are almost dormant as a result of the pandemic. 

Read: Questioning VAT on Free Gift Amid Corona Pandemic 

One of the facilities provided by the government to encourage export is the imposition of Value Added Tax (VAT) rate of 0% for the export of certain goods and services, as stipulated in Article 7 Paragraph (2) of the VAT Law. 

Questioning VAT Sanctions 

The enthusiasm of the zero-rated VAT facility policy is very good, but at the state of tax administration implementation, it often confuses exporters. For example, the application of VAT administrative sanctions, which is partly because VAT-Registered Persons do not report tax invoices issued in the Periodic VAT Return or do the reporting but do not comply with the issuance period (not on time). In the context of export, the Export Declaration is equated with a tax invoice. 

The Taxation General Provisions and Procedures Law (KUP Law), in particular, Article 14 paragraph (4) states that: "... not only the obligation to settle the VAT payable, Entrepreneurs or VAT-Registered Persons are also subject to a fine of 2% of the Tax Base ..." 

The statements that start with "... not only the obligation to settle the VAT payable..." means that a 2% fine will only be imposed in case of VAT payable. 

Thus, in relation to export transactions with 0% VAT, according to the provision, it is not subject to a fine of 2% of the export value if the Export Declaration has not been reported in the Periodic VAT Return or reported but is not on time (late reporting). 

Read: Testing Fiscal Credibility During Crisis and Covid-19 Pandemic 

Practically, the Directorate General of Taxes (DGT) applies this sanction to export transactions even though the VAT payable is nil. In fact, late or not, the reporting of tax invoices in the Tax Return is merely an administrative error that does not cause losses to the state, considering that the VAT on export is 0%. 

Legal Certainty 

The Tax Authority must get the implementation of this sanction straight. The Director General of Taxes should have issued a policy or implementing regulations regarding this matter so that the application of the tax provisions remains on the right track. It is also important that the exporters–as the main suppliers of the foreign exchange–should not be treated unwisely by tax officials. 

Read: Tax Issue Amid Polemic on Increase in BPJS Kesehatan 

It is just one small case of the many multi-interpretations of tax administration provisions that cause legal uncertainty. Therefore, to pave the way for Indonesia to move out of the middle-income trap by 2030 or even to become a developed country by 2045, we should first clean up such small obstacles. Because a lot of big dreams start with small things. On the other hand, the small problems that are left to pile up can create an "Iceberg" phenomenon that could threaten the future. 

This article is a reminder and encouragement for this Nation, which at the age of 75 this year echoes "Indonesia Maju/Indonesia Onward". 

**) A short version of this article has been published on Jawapos.com, on 1 September 2020. 

World Bank, BPS, Jawapos, Republika, Tirto, CNN Indonesia

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.


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