In an attempt to create ease of doing business, the government through the Job Creation Law removed the transfer of goods on consignment from the list of types of transactions subject to Value Added Tax (VAT). With this, goods that are entrusted/deposited (on consignment) are not automatically VAT payable if they have not been sold. This policy should be appreciated although it still leaves the question, why is the same treatment not applied to the transfer of goods to intermediary traders?
In the Great Indonesian Dictionary (KBBI), consignment is defined as the entrustment of merchandise to an agent or person for sale by later payment; sales through third parties. Meanwhile, intermediary traders are defined in the elucidation of Article 1A letter c of the VAT Law as individuals or entities that in their business activities or work under their own names enter into agreements or engagements on and for other people's dependents by receiving certain wages or compensation, for example, commissioner.
From both definitions, the sale of goods on consignment and the sale of goods to intermediary traders are principally similar. In both types of transactions, the ownership of the goods changes hands at the time the goods are successfully sold or purchased by the final buyer. When the goods are handed over by the seller to the consignee or the intermediaries (commissioner), no trade transaction occurred. Although the substance is alike, the VAT Law makes a separate term between the transfer on consignment and transfer to intermediary traders.
Before the issuance of the Job Creation Law, both the transfer of taxable goods (BKP) on consignment and to intermediary traders are subject to VAT. This means that the VAT is already payable when the goods are entrusted to the consignee or the commissioner. Consequently, the seller must pay VAT to the state treasury even though the status is the goods have not been sold. This regulation is certainly not business-friendly because it will disrupt the cash flow of businesses. Albeit the refund mechanism available to avoid VAT payment before the goods are actually sold, such mechanism is quite troublesome in terms of administration for business actors.
It must be admitted that the elimination of the transfer of goods on consignment from the list of VAT payable transactions through the Job Creation Law is the appropriate regulation because the VAT is not payable when the goods have not been sold. With the new mechanism, businesses entrusting their goods to other parties are not obliged to pay VAT on goods the ownership of which have not been transferred. Taxpayers are also free from the burden of complicated tax administration in issuing a return note to avoid the risk of paying VAT in advance. The relaxation strongly supports the increasingly widespread trading practices using consignment schemes. Especially in the digital age that significantly nourishes trade through electronic systems or e-commerce.?
The problem is, why is the transfer of goods to intermediary traders still stated as VAT payable? After all, this transaction scheme is essentially the same as a consignment, i.e., no transfer of rights to goods was made yet.
These two different arrangements surely have the potential to cause implementation problems in reality and may trigger disputes between taxpayers and tax authorities.
Different interpretations in the definition of both types of transactions can also cause problems. For example, a taxpayer declares their transaction as a consignment, so that the VAT is not payable. Meanwhile, the tax authorities argue that the transaction is a transfer of goods to an intermediary trader, so that the VAT must be payable. Even though the goods are still owned by the principal, with regard to the transfer to the intermediary trader, the transaction can be considered VAT payable.
Can’t help but wondering, why can't the transfer of goods to intermediaries be removed from the list of VAT-payable transactions?
**) A short version of the article was published in Jawapos.com on 18 May 2021.