Regulation Update
The Provisions Expanded, Installation and Subscription Fees for Drinking Water are VAT-Free

Thursday, 15 April 2021

The Provisions Expanded, Installation and Subscription Fees for Drinking Water are VAT-Free

JAKARTA. The government expands the provision of Value Added Tax (VAT) exemption on the transfer of taxable goods in the form of clean water not ready to drink, or those ready to drink other than bottled water.

The expansion concerns the cost of connecting or installing clean water as well as the fixed charges of clean water or subscription, also vat-free.

The connection or installation fee is the cost charged by the water supply company to the customer for the water installation owned by the company with the customer's.

Meanwhile, the fixed cost or subscription is the cost that the company bills to the customer, with a fixed amount and is not affected by the volume of water usage.

Read: Rectifying the Misperception of VAT Exemption Facilities on Strategic Goods

These provisions are contained in Government Regulation (PP) Number 58 of 2021, which is promulgated and comes into effect on 7 April 2021 which amends Government Regulation Number 40 of 2015.

Input Tax Crediting

Regarding the exemption of VAT on the delivery of clean water, there are a number of things to know:

  1. Entrepreneurs who deliver clean water must be confirmed as VAT-Registered Persons.
  2. Entrepreneurs who deliver clean water are required to make a tax invoice.
  3. Input tax on the acquisition of taxable goods or taxable services used to obtain clean water may not be credited.

In its deliberations, the government said this change was made to provide legal certainty regarding the imposition of VAT on the delivery of clean water.

Read: Rain Tax, Fiscal Instrument for Flood Control?

In addition, the government also argues that this change is the impact of the enactment of Law Number 11 of 2020 on Job Creation, which aims to facilitate taxation, encourage priority economic activities, increase competitiveness and accelerate national development.

Meanwhile, the VAT exemption on clean water is carried out considering that clean water is a basic need of the community, therefore its existence must be guaranteed. In support of this, the government provides the taxation facility.


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