According to the harmonization of tax regulations, the government through Minister of Finance Regulation (PMK) No. 67/PMK.03/2022—reinforces the application of Value Added Tax (VAT) for insurance agent services, insurance broker services, and reinsurance broker services. The regulation governs the types of transfer related to insurance and reinsurance as VAT objects.
In terms of the concept of VAT, the policy is appropriate because it emphasizes that the object of VAT is not the insurance, but services related to the transfer.
However, in practice, it becomes inconsistent and causes confusion. This is because the tax authority can determine in a position, of an insurance agent who has a Tax ID Number as a VAT-Registered Person.
This is not in line with the definition of a VAT-registered person in the VAT Law and is contrary to PMK 197/PMK.03/2013, which stipulates that only taxpayers with gross revenue of more than IDR 4.8 billion a year can be determined as VAT-registered person.
In the VAT Law, it is explained that entrepreneurs are individuals or entities that carry out business activities or works to produce goods, import goods, export goods, conduct trade businesses, utilize intangible goods from outside the customs territory, provide services including exporting services, or utilizing services from outside the customs territory.
Meanwhile, a VAT-registered person is defined as an entrepreneur who conducts the transfer of Taxable Goods (BKP) and/or Taxable Services (JKP).
So, is it possible for every entrepreneur to be appointed or apply as a VAT-Registered Person? What about small entrepreneurs with a revenue of less than IDR 4.8 billion?
Small entrepreneurs can actually choose to be confirmed as VAT-registered persons or not, as stipulated in Article 3A Paragraphs 1 and 1a of the VAT Law.
"(1). An entrepreneur who performs the delivery as set forth in Article 4 section (1) point a, point c, point f, point g, and point h. except the
small entrepreneur of which limitation is stipulated by the Finance Minister shall be obliged to report its business to be established as a VAT-registered person and shall be obliged to collect, deposit, and report the payable Value Added Tax and Sales Tax on Luxury Goods."
"(1.a) Small entrepreneurs as set forth in section (1) above could choose to
be established as a VAT-Registered Person."
The provision was then confirmed through PMK Number 197/PMK.03/2013, which sets a year's gross circulation value of no more than IDR 4.8 billion as a limit. Therefore, as long as the income of the taxpayer's business does not exceed IDR 4.8 billion, it is included in the category of small entrepreneurs who can choose to be confirmed as VAT-registered persons or not.
Administrative Burdens and Sanctions
In practice, the determination of taxpayers as VAT-registered persons has administrative consequences and implications. In this case, the taxpayer is obliged to collect VAT on every transaction of transfer of BKP and/or JKP.
Furthermore, a VAT-registered person is required to pay the tax collected to the authorities, as well as prepare a report and submit a Periodic VAT Return. If they neglect your obligations as a VAT-registered person, the taxpayer is threatened with administrative and criminal sanctions.
Thus, there are at least two issues that should be questioned by the implementation of PMK Number 67/PMK.03/2022. First, the inconsistency of establishing an insurance agent as a VAT-registered person which uses the Tax ID number as its basis. This is different from the stipulation of VAT-registered persons in other business sectors, which refers to a gross revenue value of more than IDR 4.8 billion in a year. By mentioning the term VAT-registered person of Insurance Agent, it can be concluded that the determination of VAT-registered person in PMK Number 67/PMK.03/2022 is based on the tax object, not the gross revenue value.
Second, the inconsistency of VAT-registered person's obligations to Insurance Agents. In this case, the Insurance Agent, a VAT-registered person, is obliged to collect VAT and make tax invoices or equivalent documents. Speaking of obligations, there are always sanctions that threaten those who are negligent or neglectful.
When referring to VAT regulations in general, a tax invoice document must be made by the seller, even if the transaction partner is a party who is also a tax collector (WAPU). In the case of the Insurance Agent as a VAT-registered person, usually the insurance company as the VAT collector (WAPU party) makes a tax invoice for the commission given to the insurance agent. The insurance agent as a party providing services is only obliged to report the delivery of their services to the tax collector in the Periodic VAT Return.
The question is, who will bear the administrative sanctions for negligence, delay, or incorrectness in the tax invoices?
Unfortunately, PMK Number 67/PMK.03/2022 does not explain in detail about this. Referring to the generally accepted tax Invoice provision, administrative sanctions are imposed on the sellers who are obliged to issue a tax invoice, even though they are transacting with the WAPU.
Therefore, in the case of the transfer of insurance services, the insurance agent as the insurance seller cannot be blamed for potential administrative negligence considering that tax invoices are issued systematically by the insurance company (WAPU).
*The article was published in Kumparan.com on 17 November 2022.