Regulation Update
Provision for the Business Classification Selection for Taxpayers is Improved

Friday, 30 September 2022

Provision for the Business Classification Selection for Taxpayers is Improved

The Directorate General of Taxes (DGT) has released a new provision related to Business Classification (KLU) in the Director General of Taxes Regulation Number PER-12/PJ/2022.

The regulation revokes the previous provision, namely the Decree of the Director General of Taxes Number KEP-233/PJ/2012 as amended by the regulation KEP-321/PJ/2012.

Meanwhile, KLU is a grouping of companies based on business activities as part of the identity of the taxpayer.

In addition to corporate taxpayers, the KLU grouping also applies to individual taxpayers who conduct free business activities, the undivided inheritance that runs business activities, and government agencies.

Read: VAT on Financial Services, Dualism in Economic Inclusion Policy

The determination of KLU can be carried out by the Director General of Taxes when providing a Taxpayer Identification Number (Tax ID number) in ex officio, or by the taxpayer when registering a business entity.

Selection of Business Classification

Keep in mind that the determination of KLU cannot be arbitrary as it must be consistent with the business activities being carried out.

The problem is that there are several conditions that might cause confusion for taxpayers when determining KLU for their business.

Some of these conditions include, if the taxpayer has more than one business activity, their business activities are integrated from end-to-end or the taxpayer has separate businesses at the center and branches.

All of these conditions have not been explicitly regulated in the old provision. "That the Decree of the Director General of Taxes Number KEP-233/PJ/212 which has been amended by KEP 321/PJ/2012 still requires improvements to accommodate developments and needs," stated the government's consideration.

Therefore, in the new provision, the government confirms the mechanism for determining KLU for each of the conditions mentioned.

Several Business Activities

In principle, the selection of KLU by both the taxpayer and the Director General of Taxes must be in accordance with the business activities undertaken.

However, for corporate taxpayers who carry out more than one business activity, they can choose one of them as KLU which represents the main activities of the company registered in the DGT system.

Nevertheless, the selection of the KLU must refer to the stipulated provisions. The following is the procedure for selecting the business activities that will be used as KLU.

First, the selected business activity must have a gross revenue or provide the largest income among all business activities of the taxpayer, in the previous tax year. This KLU selection procedure also applies to economic activities carried out by families as a single unit of economic activity.

Second, if the gross revenue of each business activity is equal, the taxpayer is free to choose which business activities will be registered as the basis for determining KLU. Similarly, if all the business activities to be registered have not been running.

Integrated Business Activities

The new provisions also emphasize the selection of KLU for companies that have end-to-end integrated business activities.

For taxpayers who conduct production, distribution, marketing, and management activities, the determination of their KLU can be based on one main business activity.

Central and Branch Business Activities

Meanwhile, for tax purposes, taxpayers who have a head office and a branch office must have the same main KLU. This is so that taxpayers are in a single legal and economic entity.

KLU Changes

In the event that an error occurs or there is a change in business activities, the taxpayer can make changes to the KLU.

Changes can be made through the procedure for changing taxpayer data, such as when changing Tax ID numbers, electronic certificates, or when changing the status of VAT-registered persons.


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