Taxpayers need to be cautious with the expansion of the object of Value Added Tax (VAT). Because there are potential problems behind the policy. Particularly with the change in the criteria for goods and services that have been "not payable" to become strategic goods/services that are "exempt" from taxes.
The government through the Harmonized Tax Law (HPP Law) removed a number of goods and services from the negative list or the list of VAT not payable. The goal is to expand the tax base or increase tax revenue.
There are 13 items in Article 4A of the VAT Law that were omitted from the negative list based on the HPP Law, namely:
- mining products or drilling products taken directly from the source;
- staple goods that are needed by many people;
- medical health services;
- social services;
- mail delivery service with stamp ;
- financial services;
- insurance services;
- educational services;
- non-advertising broadcasting services;
- public transportation services on land and in water as well as domestic air transportation services which are an inseparable part of foreign air transportation services;
- labor services;
- public telephone services using coins; and
- money remittance service by postal money order.
Although omitted, some items such as staple goods, financial services, insurance services, health services, and educational services are re-categorized as strategic goods and services that are planned to get VAT exemption facilities.
That may be ambiguous because the substance is practically the same. Goods and services that change status from "not payable" to "exempt" are equally not subject to VAT.
Although the substance is quite similar, administratively it has the potential to be more troublesome for taxpayers and tax authorities.
These potential problems surfaced in a Focus Group Discussion (FGD) organized by MUC Consulting online, Monday (18/10/2021).
Among other things, related to the obligation to issue tax invoices for business actors whose goods or services have been included in the negative list or are not payable VAT.
By eliminating the negative list and changing the status to taxable goods (BKP) or taxable services (JKP), there is an obligation to collect VAT and issue tax invoices. This administrative implication will be “homework” that must be anticipated by the VAT-Registered Persons (PKP), especially those whose goods or services are omitted from the negative list. Such as producers of staple goods, providers of medical services, social services, financial services, educational services, insurance services, and labor services.
So far, taxpayers in the business sector only need to submit the total value of transfer that is not tax payable in the VAT return. With the enactment of the HPP Law, in the future taxpayers must issue tax invoices.
This will be a new compliance burden for taxpayers and have a serious impact on the ease of doing business in Indonesia. Because, making and issuing tax invoices for transactions that are not small in number, requires time and high accuracy.
In addition to not being late in issuing a tax invoice, the invoice code should also not be false either. The tax authority sets a different invoice code for goods/services transfer transactions that get exemption facilities (invoice 08) and those that are not or normal (invoice 01). For delays or errors in issuing tax invoices, there is a penalty of 1% of the selling price.
Unless, the government decides otherwise, for example, by not requiring tax invoices for VAT-Registered Persons whose goods and services are "exempt" from VAT.
Actually, there is one more type of facility related to the VAT policy, that is “not-collected tax”. This facility is not included in the revision of tax regulations in the HPP Law.
Thus, there are three approaches in Indonesia's VAT regime, those are “not payable”, “not collected”, and “exempt” taxes.
At first glance, these three phrases look similar: not subject to VAT. However, for taxpayers each phrase has different implications. Primarily regarding the obligation to issue tax invoices and input tax credits.
“Not payable” in the Indonesian VAT regime means that it is not taxable and is not required to make a tax invoice. In this case, the taxpayer cannot credit the input tax.
Meanwhile, “not collected” and “exempt” VAT are facilities from the government that both do not impose taxes on goods or services that should be subject to VAT. However, VAT-registered persons who receive these two facilities are obliged to issue a tax invoice every time they do goods or services transfers.
The difference is that VAT- Registered Persons who receive the "not collected" VAT facility can credit the input tax. Meanwhile, those who are recipients of VAT "exempt" facilities cannot credit input tax.
If the input tax cannot be credited, the selling price of the product or service has the potential to rise. Typically, employers tend to pass on this tax burden to consumers.
Thus, the adjustment of the VAT object can have two implications. First, VAT-Registered Persons are required to issue a tax invoice, which if they do not comply or are late in fulfilling it will be subject to administrative sanctions in the form of a fine of 1% of the selling price.
Second, the consumer's economic burden has the potential to increase due to input taxes that cannot be credited on the transfer of goods/services that are VAT "exempt".
So, taxpayers must be careful with the expansion of the VAT object because there are serious implications that will go along with it. Especially with the change in the criteria for goods and services that have been "not payable" to become strategic goods/services that are "exempt" from taxes.
**) A short version of the article was published in Kompas.com, on 1 November 2021.