Regulation Update
HPP Law Changes a Series of Rules in the VAT and STLG Law, See The Details.

Wednesday, 13 October 2021

HPP Law Changes a Series of Rules in the VAT and STLG Law, See The Details.

HPP Law Changes a Series of Rules in the VAT and STLG Law, See The Details.

The issuance of the Harmonized Tax Law (HPP), has changed a number of provisions in Law number 42 of 2009 concerning Value Added Tax (PPN) and Sales Tax on Luxury Goods (STLG).

In general, there are seven articles of the VAT and STLG Law that have undergone changes, such as article 4A, article 7, article 8A, article 9, article 9A, article 16B and article 16G.

In conclusion, the seven articles regulate five main policies, consisting of the reduction of VAT objects and facilities, increases in VAT rates, input tax credit mechanisms, simplification of procedures, and delegation of authority.

Addition of VAT Objects

The HPP Law has abolished a number of goods and services from the list that are not subject to VAT as stipulated in Article 4A paragraph (3) of the VAT and STLG Law. Thus, these goods and services are now subject to tax.

However, even though they are designated as VAT objects, these goods and services will receive VAT exemption facilities. The provision of this facility is confirmed in Article 16B of the VAT and STLG Law. The following is a list of goods and services that receive VAT exemption facilities:


 Goods   Medical Services  Social Services  Financial Services   Insurance Services Education Services  Public Transport Services Labor Services 
  • Rice
  • Rice grain
  • Corn
  • Sago
  • Soya
  • Salt
  • Meat
  • Egg
  • Milk
  • Fruits
  • Vegetables












Specific Medical Services:

  • GP (General Practitioners), specialist, and dentist services;
  • veterinarian services;
  • medical expert services, such as acupuncturist, nutritionist, dental, and physiotherapist;
  • midwife and TBA (traditional birth attendance) services;
  • paramedic and nurse services;
  • hospital, maternity home, medical clinic,
  • medical laboratory, and sanatorium services;
  • psychologist and psychiatrist services; and
  • alternative traditional medicine services

Healthcare and social security agency (BPJS Kesehatan) service

  • orphanages and nursing house services;
  • firefighter services;
  • first aid services;
  • rehabilitation services;
  • services for the provision of funeral home or burial services, including crematorium; and
  • services in the field of sport, excluding for commercial purposes.








  • fund gathering from the public services includes current account, time deposit, saving, and or any other equal forms;
  • Services on placing or lending the fund to the other parties using various means;
  • finance services, 
  • loan distributing services, including legal basis of lien 
  • Underwriting services








  • Insurance service:
  • loss insurance
  • life insurance
  • reinsurance


















  • service on the provision of school education
  • out of school education service.














  • Water, land and air public transportation


















  • labor service
  • labor supply services
  • training services for the labor.














Meanwhile, several types of goods and services such as food, money or gold bullion, religious services, hospitality services, government services, parking services and catering services are still exempt from VAT. Considering that these goods and services are objects of regional taxes and retribution (PDRD).

VAT Rate Increases Gradually to 12%

The HPP Law states that from 1 April 2022 to 31 December 2024, the rate of VAT is set to be 11%, higher than the current rate of 10%.

Then from 1 January 2025 onwards, the VAT rate will again be raised to 12%. This provision is stipulated in the amendments to Article 7 paragraph (1), paragraph (3).

In addition, as regulated in the VAT and STLG Law, the HPP Law also stipulates that the government may change the tariff, provided that it does not exceed the stipulated limit, of a minimum of 5% and a maximum of 15%.

What is distinguishes from the previous rules, the HPP Law allows the government to change the rate by issuing Government Regulations (PP) after approval of the House of Representatives (DPR), through the state budget mechanism.

Final VAT For Certain Goods and Services

The HPP Law allows certain VAT-Registered Persons (PKP) to calculate VAT at a final rate based on the value of gross income or revenue.

This is stated in Article 8A paragraph (1) of the HPP Law, which states that the calculation of VAT can be based on the selling price, replacement value, import value and other values ??that will be determined by the government.

Actually, explicitly the use of this final VAT is not mentioned in the HPP Law, but it was affirmed by the government on a number of occasions.

The government states the final VAT rate that may be applied is 1%, 2% or 3% of revenue. VAT-Registered Persons that can use the final VAT rates include those with a certain revenue value.

In addition, the HPP Law also stipulates that any input tax whose tax base uses other value can be credited. This affirmation is stated in an additional provision, namely, article 8A paragraph (3).

VAT Facilities Trimmed

The number of VAT facilities that previously amounted to 15 was trimmed to only 10 facilities. This is contained in article 16B of the HPP Law, which changes the explanation of article 16B of the VAT and STLG Law.

Some of the facilities revoked include:

  • VAT not-collected for equipment procurement by the Indonesian Armed Force (TNI)/ the Indonesia National Police (POLRI)
  • VAT not-collected for procurement related to boundary data and aerial photos by the TNI
  • VAT Exemption on the provision of basic, very basic houses and basic flats for the low-income community
  • VAT not-collected for the development of national fleets in the field of air, land, and marine transportation
  • VAT exemption for the availability of strategic goods such as raw materials for silver handicrafts
  • VAT exemption related to the provision of clean water and electricity

Thus, the VAT facilities that are still valid include:

  • VAT not-collected to promote exports and downstream industry
  • VAT exemption related to trade and investment agreements with other countries or international conventions that have been ratified
  • VAT exemption related to the national vaccination program
  • VAT exemption for the purpose of improving the quality of education
  • VAT exemption related to the construction of places of worship
  • VAT not-collected for government projects financed by grants or foreign loans
  • VAT not-collected for accommodating international agreements.
  • VAT exemption in the context of handling natural disasters
  • VAT not-collected for the availability of air transportation for the public interest
  • VAT exemption for strategic goods, including certain basic necessities and services

Input Tax Credit Provisions Reinforced

The HPP Law has also emphasized provisions related to crediting input tax.
Especially for entrepreneurs who in one tax period submit goods that are tax payable, but not all of the input taxes can be credited.

Then the entrepreneurs can only credit the part of their input tax that allow to be credited, based on their records or books.

Meanwhile, if the amount of input tax on the delivery of the goods cannot be ascertained, the entrepreneur can use the input tax crediting guidelines. This provision is regulated in the amendments to Article 9 paragraph (5) and paragraph (6) of the HPP Law.

Meanwhile, in Article 9 paragraph (5) of the previous VAT and STLG Law, it is only regulated about crediting input tax on the delivery of goods that are tax payable and not tax payable by entrepreneurs in one period only. The old regulations did not explicitly state the status of the goods submitted, whether they could be credited or not.

The government stated that the changes were made to broaden the tax base by including goods and services that have not been subject to VAT into taxable goods and services.

This is done given that the capacity of tax authorities in collecting VAT revenue is still low. As evidence, from the C-efficiency value of Indonesia's VAT is still 63.58%.


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