The government has tightened the requirements for submitting import duty refunds for companies receiving the Import Facility for Export Purposes (KITE) facility. Starting on 1 November 2022, only companies with the status of VAT-registered persons (PKP) and installing surveillance cameras (CCTV) can apply for import duty refunds.
This provision is contained in the Minister of Finance Regulation (PMK) Number 145/PMK.04/2022 on Refund of Paid Import Duty on the Import of Goods and Materials to be Processed, Assembled, or Installed on Other Goods for the Purpose of Export. The regulation, published on 18 October 2022, simultaneously revokes the previous provision, Minister of Finance Regulation PMK Number 161/PMK.04/2018.
KITE is an import duty exemption facility for manufacturing companies that import goods and materials to be processed and then exported.
Surveillance is Strengthened
The obligation to install surveillance cameras or Closed Circuit Television (CCTV) aims to facilitate the Directorate General of Customs and Excise (DJBC) in monitoring and supervising the traffic of goods, starting from the entry, storage, and release of goods and materials as well as production results. This is done to make sure that the imported goods are actually to be processed and then exported, not traded domestically.
For this reason, CCTV must be connected and accessible to DJBC. In addition, companies are also required to keep records for at least the last seven days. If the company disobeys the clause, the import duty refund facility will be stopped.
Read: Additional Tax Incentives for Taxpayers Recipient of KITE Facilities Revoked
Companies that have not installed CCTV connected to DJBC, must comply with this regulation no later than six months after it takes effect.
A KITE company that wishes to claim an import duty refund must fulfill a number of requirements in addition to installing CCTV and obtaining VAT-registered person status, including:
- Companies are obliged to carry out manufacturing business activities and have processing, assembly, or installation activities.
- Have a certificate of ownership or control over the production site, and storage of materials and products, for a minimum of three years.
- Have an adequate internal control system.
- Have a computer-based inventory information system or information technology
VAT-Registered Person Status
In the latest regulation, Minister of Finance Sri Mulyani Indrawati emphasized that only companies that have been designated as VAT-registered persons can receive the KITE return facility or import duty refund.
In addition, the companies must have a valid business license, both an operating permit and a commercial activity permit.
Previously, the requirements for obtaining KITE facilities in the form of import duty refund were relatively easier; companies were merely required to have a Business Identification Number and an industrial business license or something similar.
If the criteria and conditions have been met, the company can apply for a determination as a KITE company entitled to the import duty refund facility.
The application is submitted to the Minister of Finance through the Head of the Regional Office or Main Office (KPU) of DJBC which oversees the company's business activities through the Online Single Submission (OSS). If the OSS system crashes, the request can be submitted in writing.
The relevant authorities will examine the documents' accuracy upon request, pay a visit to the business, and then provide an inspection report.
Business entities must also explain business processes to ensure that they meet the criteria. The explanation must be made a maximum of three working days after the minutes of the audit are published, which can be extended a maximum of three working days.
The Head of the Regional Office or the Head of the KPU will issue a decision on whether the application is rejected or accepted, a maximum of one hour after the explanation. Applications are automatically rejected if the company cannot explain the business process.
There are several other conditions that must be met by a business entity after its application is granted.
- Install company nameplate and status as a recipient of KITE return facilities at factory locations, storage, and business activities.
- Record goods originating from the KITE return facility separately from goods that are not recipients of the facility.
- Companies are required to submit annual reports, reports on the economic impact of the provision of KITE facilities, and reports on achievements and targets for key performance indicators to the Head of the Regional Office or Head of KPU by 30 June each year.
The KITE return facility is provided for imported goods or materials to be processed, assembled, or installed and then the products are exported.
The time given to the company receiving the KITE return facility to export is a maximum of 12 months from the date of registration of the import declaration.
Upon expiration of the export period, the authority may extend it for a maximum of 24 months if the following circumstances arise:
- Buyers delay exports;
- Exports are canceled or there is a change of buyers;
- There are remaining goods or materials that have not been produced;
- There is a force majeure condition; or
- Other conditions that require the realization of exports to be extended
However, for companies whose production process is more than 12 months, the export period can be longer.
Transfer of Production Process
PMK Number 145/PMK.04/2022 also emphasizes that every imported good must be processed, assembled, or installed so as to produce value-added goods.
However, the company may transfer part or all of its production process to another company that does not have facilities, after obtaining approval from the Head of the Regional Office or Head of KPU.
The transfer of the production process can only be granted to (1) public companies whose shares are wholly owned by the public; (2) obtaining recognition as an authorized economic operator; (3) has been designated as the Main Partner of Customs (MITA), or (4) other companies that fall into the low-risk category.
Imported goods that have been processed or assembled must be exported directly to outside the customs territory or through the Bonded Logistics Center (PLB). Furthermore, a business entity can apply for an import duty refund no later than six months after the export is conducted.
When submitting an application, the company must attach a letter of use of imported goods for which the import duty refund is requested. The contents include information on production results, the use of goods and materials, and a scrap of the production process.
The request for an import duty refund will be denied if it is submitted after the allotted period has passed.