The increase in the Value Added Tax (VAT) rate to 11% as of 1 April 2022 and to 12% no later than 2025 will also impact the agricultural sector, primarily related to the transfer of agricultural products and subsidized fertilizers.
The VAT rate on the transfer of the two commodities automatically increases, according to the issuance of the Minister of Finance Regulation (PMK) Number 64/PMK.03/2022 and PMK Number 66/PMK.03/2022, each of which revises and revokes the previous provisions (PMK Number 89/PMK.010/2020 and PMK Number 62/PMK.03/2015).
Certain Agricultural Products
In general, the basis for the VAT imposition on the transfer of certain agricultural products has not changed much, namely 10% of the generally accepted VAT rate.
Similarly, certain agricultural products that are subject to VAT still remain: 24 types of plantation commodities, 4 types of food crops, 3 types of ornamental and medicinal plants, and 10 types of forest products (timber and non-timber). For more details, see the appendix of PMK Number 64/PMK.03/2022.
Previously, VAT on the transfer of certain agricultural products was set at 10% of the other values ??used as the tax base. Another value in question is 10% of the selling price, assuming the current VAT rate is 10%.
Following the new regulations, effective as of 1 April 2022, the tax payable is set at 1.1% of the selling price, referring to the applicable VAT rate of 11%.
The tax burden will adjust to 1.2% of the selling price if the generally accepted VAT rate is again raised by the government to 12% in 2025 at the latest.
In this case, the government appoints a VAT-Registered Person who transfers certain agricultural products as VAT collectors. For this reason, the VAT-Registered Person concerned is required to make a Tax Invoice as withholding evidence and report it in the Periodic VAT Return.
The government confirms that the input tax on the acquisition of goods and/or services in connection with the transfer of certain agricultural products cannot be credited.
On the transfer of subsidized fertilizers, the government has also adjusted the tax amount and the method of calculating the tax payable according to the general increase in VAT rates. However, the substance is actually not too different between the new provisions and the old ones.
However, the government only clarifies the mechanism for calculating other values ??on which the base of tax payable. In the new regulation, other values ??that become tax base are calculated using the formula:
100/(100+VAT Rate) x the amount of subsidy payment including VAT
100 / (100+VAT Rate) x Maximum Retail Price
Whereas in the previous regulation, the government directly set other values with the formula:
100/110 x the amount of subsidy payment
100 /110 x Maximum Retail Price
For the rest, there are no substantive changes that occur from the new rules regarding the collection of VAT on subsidized fertilizers.
However, as an illustration, there are several things that must be noted regarding the VAT provisions on the transfer of subsidized fertilizers.
First, VAT on subsidized fertilizers is only collected once when it is handed over from the producer to the distributor. So for the transfer from distributors to retailers, farmer groups or farmers are not subject to VAT.
Second, the VAT payable arising from the transfer of the subsidized fertilizer must be made a tax invoice.
The making of a tax invoice is done when the producer submits a payment request to the proxy of budget user (KPA) and the producer submits the subsidized fertilizer to the distributor.
Third, distributors and retailers who only receive and deliver subsidized fertilizers do not need to be confirmed as VAT-Registered Persons.
Except, if the distributors and retailers also deliver other taxable goods or services other than subsidized fertilizer with a revenue value above the limit of small entrepreneurs, it must be confirmed as VAT-Registered Person.
In addition to having to be confirmed as VAT-Registered Persons, the distributors and retailers are also required to report the VAT payable from the transfer of taxable goods or services and report the transfer of subsidized fertilizers in the Periodic VAT Return.
Fourth, producers can credit input taxes on the acquisition of subsidized fertilizers, but not for distributors and retailers.
Related to the tax credit, only subsidized fertilizer producers can credit the input tax. Meanwhile, distributors and retailers of subsidized fertilizers cannot credit the input tax.