Indonesian VAT

Scope of VAT
In Article 4 of the Indonesian VAT Law, VAT is the tax imposed on:

1. supply of Taxable Goods by a Taxable Person for VAT purposes within the Custom Area of Indonesia;
2. importation of Taxable Goods;
3. rendering of Taxable Service by a Taxable Person for VAT purposes in the Customs Area of Indonesia;
4. utilization of intangible Taxable Goods obtained from outside the Customs Area of Indonesia within the Customs Area;
5. utilization of Taxable Service obtained from outside the Customs Area of Indonesia within the Customs Area; or
6. exportation of Taxable Goods by a Taxable Person for VAT purposes

Key Terms
So, there are some terms in VAT we have to know like Taxable Goods, Taxable Service, Taxable Persons, Firm, Tax Invoice and Custome Are. These meaning of term are important to understand VAT Concept.

Taxable Goods (or Barang Kena Pajak in Indonesian) are goods, which according to their nature and legal status are movable, or immovable, and intangible assets, which are subject to VAT.

Taxable Services (or Jasa Kena Pajak in Indonesian) are any service activity under a contractual agreement or legal arrangement which makes available for use goods, facilities or rights, including services provided on order or request, for which the material is provided by the customer, which are subject to tax according to the VAT law.

Taxable Person (or Pengusaha Kena Pajak in Indonesian) for VAT purposes is a firm which supplies Taxable Goods and or renders Taxable Service according to the VAT Law, excluding small firms with a turnover not exceeding a limit determined by the Minister of Finance Decree. However, small firms may choose to be confirmed as Taxable Person for VAT purposes.

Firm (or Pengusaha in Indonesian) is an individual or an entity, which in the course of business or work, produced goods, imports goods, export goods, engages in trading activities, utilizes intangible goods obtained from outside the Customs Area, provides business service, or utilizes service obtained from outside the Customs Area.

Customs Area (or Daerah Pabean in Indonesian) is the Territory of the Republic of Indonesia, which covers land, sea, and air as well as specific areas within the Exclusive Economic Zone and the Continental Shelf within which Law Number 10 Year 1995 on Customs apply.

Tax Invoice (or Faktur Pajak in Indonesian)is proof of tax withheld by a Taxable Person for VAT purposes on supply of Taxable Goods or rendering of Taxable Services or by the Directorate General of Customs and Excise on the importation of Taxable Goods.

Non Taxable Goods and Services
There are some kinds of goods which are excluded as taxable goods in Art. 4A of Indonesian VAT Law. Their catagories are :

1. Products of mining and drilling, taken directly from the source;
2. Daily necessities needed by public
3. Food and beverages served in hotel, restaurant, and such other places;
4. Money, gold, and valuable documents.

Some kinds of services are also excluded as taxable services. They are
1. healthcare;
2. social welfare;
3. postal delivery;
4. banking, insurance and financial leasing;
5. religion;
6. education;
7. culture and entertainment which has been imposed by entertainment tax;
8. broadcasting, not include advertising;
9. shipping and inland public transportation;
10. manpower;
11. rendering of services by the goverment in efforts to run the goverment in general.

VAT Mecanism

In general, taxable persons who supply taxable goods or render taxable service have to impose VAT to their buyer. The imposing VAT is done by witholding 10% VAT rate of taxbase. As proof of this VAT witholding, taxable persons have to make tax invoice. Because this tax invoice is made when they sell, the tax invoice is called output tax invoice. The VAT witheld then is called output tax.

As taxable persons buy taxable goods or taxable services, they have to pay additional payment of VAT too which witheld by their supplier. This VAT then is called input tax. The witholding proof is called input tax invoice.

In a month period, taxable persons must calculated how much they withold output tax and how much input tax they have. The output tax in a month is subtracted or credited by the input tax in a month too. If there is a positive result, they have to pay to government account. In contrary, if any negative result, they can ask restitution to government.