LPG is Impacted by the VAT Increase, Here's the Tax Calculation
MUC Tax Research Institute
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Thursday, 07 April 2022
The government adjusted the rate of Value Added Tax (PPN) on Liquefied Petroleum Gas (LPG) to 11% as of 1 April 2022, as mandated by the Law on Harmonization of Tax Regulations (HPP law). The rate increased from the previous 10% and has the potential to increase again to 12% by 2025 at the latest.
The rate adjustment is stated in the Minister of Finance Regulation (PMK) Number 62/PMK.03/2022 on Value Added Tax on Transfer of Certain Liquefied Petroleum Gas, which amends and revokes the previous related provision of PMK Number 220/PMK.03/2020.
Minister of Finance Sri Mulyani Indrawati in her policy explained that the purpose of adjusting the rate and VAT policy was to expand the tax base for VAT-Registered Persons who do business with certain LPG, including agents and distribution bases for liquefied petroleum gas.
The Tax Base (DPP) with the new rate is the total selling price, replacement, import value, export value, or other values.
Read: Procedures for the Imposition and Reporting of VAT on Self-Building Activities
The Minister of Finance emphasized that the government would only bear VAT on the transfer of subsidized LPG, with a refund mechanism from the VAT-Registered Persons. As for non-subsidized LPG, the VAT is borne by the buyer, which in this case starts from the agent, distribution base to the final consumer.
VAT began to be payable and collected by business entities assigned by the government to provide and distribute LPG to agents and distribution bases.
The calculation scheme is by multiplying the VAT rate by another value as a tax base. The formula for determining other values ??that are calculated as a tax base by business entities is as follows:
100/ (100+ VAT Rate ) x Retail Price
At the agent level, the amount of VAT collected is 1.1/101.1 of the excess difference between the agent's selling price and the retail price. The same formula also applies at the base level, but the tax base is more than the base selling price and the agent's selling price.
The tax amount will change to 1.2/101.2 when the VAT rate goes up to 12% (by 2024 at the latest).
For this reason, businesses, agents, and bases must make tax invoices when transferring LPG or at the time of payment that precedes the transfer. Tax invoices are also a prerequisite for business entities that wish to apply for LPG subsidy payments from the government.
Make sure the tax invoice is made correctly in accordance with the technical guidelines in Appendix of PMK Number 62/PMK.03/2022.
The Minister of Finance in the regulation also stresses that business entities that have been assigned by the government to carry out LPG supply and distribution activities can credit Input Tax as long as they meet the provisions.
On the other hand, LPG distribution agents and bases cannot credit the Input Tax.
Example 1
As a business entity assigned by the Government, on 12 April 2022 PT Pertamina (Persero) handed over 15,000 certain LPG cylinders to PT ABC as an agent with a retail price of IDR 12,750 per cylinder. The calculation of VAT payable on the transfer of the LPG is as follows:
- Tax Base: 15.000 (100/111) x Rp12.750,00 = Rp172.297.297,29
- VAT Payable: 11% x Rp172.297.297,29 = Rp18.952.702,00
Example 2
PT ABC as the agent, handed over 5,000 certain LPG cylinders to CV XYZ on 15 April 2022 with a selling price of IDR 14,000 per cylinder. Assuming the Retail Price is IDR 12,750 per tube and PT ABC has been confirmed as VAT- Registered Persons, then the calculation of the VAT payable is as follows:
5000 x (1,1/ 101,1) x (Rp14.000-Rp12.750,00) = Rp68.001.
The VAT payable is included in the excess difference between the Agent Selling Price and the Retail Selling Price.
Example 3
Then, CV XYZ as the Base sells LPG in retail to final consumers for IDR 15,500 per cylinder. With the assumption that the Agent Selling Price is IDR 14,000 and CV XYZ has been confirmed as VAT-Registered Persons, then VAT is payable on the LPG sales transaction, the calculation formula is as follows:
VAT Payable = 1 x (1,1/ 101,1) x (Rp15.500 - Rp14.000,00)= Rp16 (per tube)
The VAT payable is included in the excess difference between the Base Selling Price and the Agent Selling Price.
