Regulation Update
The VAT Rate on Tobacco Products Set at 9.9%

MUC Tax Research Institute | Wednesday, 20 April 2022

The VAT Rate on Tobacco Products Set at 9.9%

Minister of Finance Sri Mulyani adjusted the amount of Value Added Tax (VAT) payable on the delivery of tobacco products with a change in the VAT rate applicable to the Law (UU) on the Harmonization of Tax Regulations (HPP).

Thus, the amount of VAT payable on the delivery of tobacco products is set at 9.9%, which is the result of calculating the VAT rate applicable on 1 April (11%) with another value referring to the formula: 100/(100+VAT rate).

This amount could be even higher, at 10.7%, if the government implements a VAT rate of 12% by 2025 at the latest, as regulated by Article 7 of the HPP Law.

Read: VAT Rate Increase Impacts The Transfer of Agricultural Products & Subsidized Fertilizers

The provisions regarding VAT on tobacco products are stated in the Minister of Finance Regulation (PMK) Number 63/PMK.03/2022 which is a derivative regulation of the HPP Law.

With this provision, the previous regulation, PMK Number 207/PMK.010/2016 which has been amended by PMK Number 174/PMK.03/2015, which also regulates VAT on tobacco products, becomes invalid. In this regulation, the applicable amount of VAT payable is indeed lower at 9.1% of the retail price.

Collected Once on Manufacturers/Importers of Tobacco Products

VAT payable on tobacco products is only imposed once at the manufacturer or importer level. Meanwhile, the delivery of tobacco products from the distributor level to other distributors or consumers is not subject to VAT.

The distributors are only obliged to report the delivery of their tobacco products in the Periodic VAT Return. With a note confirming their status VAT-Registered Persons.

Distributors who must be confirmed as VAT-Registered Persons are those who deliver taxable goods or taxable services other than tobacco products and are in the category of entrepreneurs who exceed the small-business limit.

On the other hand, distributors who only distribute tobacco goods and are classified as small businesses do not need to be confirmed as VAT-Registered Persons.

Tax Invoice on Tobacco Products Delivery

Meanwhile, manufacturers and importers, upon delivery of tobacco products from these manufacturers or importers are obliged to make tax invoices. In addition, the manufacturer or importer can credit the input tax. As long as it complies with the provisions on crediting input tax.

However, distributors who deliver tobacco products cannot credit the input tax.


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