Since April 1, 2022, the government has increased the Value Added Tax (VAT) from 10 percent to 11 percent.
This VAT rate increase will reportedly be phased in until 12 percent in 2025.
The underlying law is Law No. 7 of 2021 concerning Harmonization of Tax Regulations (HPP Law) Chapter IV Article 7 paragraph (1) concerning VAT.
Article 7 paragraph (3) explains that the government can change the VAT rate with a maximum limit of 15 percent and a minimum of 5 percent.
The government also regulates this rate change through a Government Regulation.
Given that VAT is also one of the sources of state revenue, its increase has finally drawn pros and cons.
Then, what is the basis for the 11 percent VAT rate increase policy and how is it calculated?
Reasons for the 11 Percent VAT Increase
The government raised the VAT rate to 11 percent as one of the efforts to increase state revenue in the tax sector, especially after the Covid-19 pandemic.
The government did not get optimal state revenue, while they maximized state spending during the pandemic, which ultimately added to the burden on the state.
As a result, the government was forced to go into debt to balance the balance sheet to meet the needs of the people during the pandemic.
Finance Minister Sri Mulyani said that the average VAT worldwide is 15 percent.
Indonesia is at 11 percent and will gradually increase to 12 percent by 2025.
So, the 11 percent VAT increase is to cover the state’s burden and strengthen the foundation of taxation, considering that taxes are the largest source of state revenue today.
Goods and Services Subject to 11 Percent VAT
This change in VAT rate raises many questions from the public, one of which is what goods or services are subject to 11 percent VAT?
Here’s the review:
- Crypto
The imposition of VAT and income tax on crypto asset trading transactions has been stated in PMK 68/2022. This regulation has also been effective on May 1, 2022. The government imposes VAT on:- Intangible taxable goods in the form of crypto assets by crypto asset sellers,
- Electronic system trading providers tax the electronic means they provide for crypto asset transactions,
- Taxable services in the form of crypto asset transaction verification services and/or crypto asset miner group management services by crypto asset miners.
- Fintech Services
The government imposes income tax and VAT on financial technology or fintech services, in accordance with the rules in PMK 69/2022 which took effect on May 1, 2022. - Used Car Purchase
The government imposes a VAT of 1.1% on the purchase of used cars from entrepreneurs, and this rate will increase to 1.2% as the VAT rate increases.
This regulation is stated in PMK 65/2022 concerning VAT on the Delivery of Used Motor Vehicles.
The amount of 1.1% comes from the calculation of 10% multiplied by the VAT rate of 11 percent.
Taxable entrepreneurs must submit the VAT Monthly Return starting April 2022. - Non-subsidized LPG
The government also imposes VAT on the distribution of 5.5 kg and 12 kg non-subsidized LPG. This is stated in PMK 62/2022 concerning VAT on Delivery of Certain LPG. Meanwhile, the government covers the full 11 percent VAT for 3 kg LPG, so consumers are not subject to VAT because this LPG is subsidized. - Internet Packages
Mobile operators have adjusted their VAT rates by 11 percent, resulting in an increase in the price of their internet packages. - Banking
Banking services are also affected by the 11% VAT.
The banking services subject to this new VAT rate are wealth management products for Safe Deposit Box (SBD)/Robotic Safe Deposit Box (RSDB) rental fees.
Here is the list:
- Mutual funds
- Securities
Goods and Services that are 11 Percent VAT-Free
Based on the COGS Law, not all goods and/or services are subject to the new VAT rate of 11 percent.
The goods and/or services that are free from the new VAT rate are:
- Basic necessities
- Health services
- Education services
- Social services
- Financial services (current accounts, long-term deposits, savings, telecommunications facilities, money orders, checks, financing with sharia principles, etc.)
In addition to the list above, the government also provides exemptions for certain types of goods/services in certain business sectors.
How to Calculate 11 Percent VAT
To calculate the VAT payable, multiply the VAT rate by the Taxable Basis (DPP), which includes the selling price, reimbursement, import value, export value, or other value.
Here’s an example:
PT Jaya Abadi as PKP in May 2024 made several transactions, namely:
- Direct sales of electronic goods to consumers amounting to Rp150 million
- Purchase merchandise amounting to Rp130 million where the price includes VAT
- Exporting electronic goods with an export value of IDR 50 million
PT Jaya Abadi also sends its merchandise to consumers through the Lancar Ekspres delivery service with a delivery fee of IDR 5 million.
Calculation of Output Tax
Output tax is the VAT payable that must be collected by the Taxable Person for VAT Purposes who deliver taxable goods, taxable services, export tangible taxable goods, export intangible taxable goods, and/or export taxable services.
On direct sales:
DPP X VAT Rate = Rp150 million x 11 percent = Rp16.5 million
PT Jaya Abadi charges a 0% VAT rate on the export of electronic goods in accordance with Article 4 number 2 of Law 7/2021.
Even so, PT Jaya Abadi still has to make a tax invoice and report it in the VAT period notification letter (SPT).
Thus, for the export of electronic goods PT Jaya Abadi paid VAT in the amount of
DPP X VAT Rate = Rp50 million x 0 percent = Rp0
Input Tax
Taxable Person for VAT Purposes must pay Input Tax for the acquisition of taxable goods, acquisition of taxable services, utilization of intangible taxable goods from outside the customs area, utilization of taxable services from outside the customs area, and import of taxable goods.
DPP = [Nilai BKP/(Nilai BKP+PPN 11 persen)] x Purchase Price of Goods
DPP = 200/222 x Rp130 million = Rp117,117,117
VAT = 11 percent x Rp117,117,117 = Rp12,882,882
For the delivery of merchandise, Lancar Ekspres collects the VAT payable using the Other Value DPP, which is 10 percent.
Unlike the DPP which should be 100 percent of the invoice value, for the delivery of goods, the Other Value DPP is used, which is 10 percent of the amount that should be invoiced multiplied by the VAT rate of 11 percent.
So that it becomes:
= (11% x 10%) IDR5 million
= 1.1% x Rp5 million = Rp55 thousand
Thus, PT Jaya Abadi must submit payment to Lancar Ekspres as follows:
= shipping cost + VAT on shipping goods
= Rp5 million + Rp55 thousand = Rp5,055,000
PT Jaya Abadi cannot credit Input VAT with other DPP final values, so the payment transaction is not considered as input tax.
If the output tax exceeds the input tax in a tax period, the PKP must deposit the difference as VAT.
The following is the VAT calculation for PT Jaya Abadi:
= Output Tax – Input Tax
= Rp16.5 million – Rp12,882,882 = Rp3,617,118
So that PT Jaya Abadi must deposit a VAT underpayment of Rp3,617,118.
KH Contact
The increase in VAT to 11 percent does require more accuracy in its calculation and application.
Mistakes in calculating VAT can have an impact on your business finances.
Well, if you feel you need further consultation or want to take care of all aspects of taxation more easily, Kontrak Hukum is ready to help.
We offer a Digital Business Assistant (DiBA) subscription service to help businesses take care of their back office needs, including taxation, financial reporting, and other business management.
For more information, please visit KH Services – DiBA.
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