Catalog of Tax Incentives: VAT Series

Jakarta, Ideatax -- The Indonesian Ministry of Finance reported that in 2023, there was an increase in tax expenditure (BKF, 2023). In 2023, the amount of tax expenditure incurred by the government was 352.8 trillion. This amount increased by 29.3 trillion compared to 2022. In 2022, the amount of government tax expenditure was 323.5 trillion.

Tax expenditure is the amount of potential state revenue that cannot be obtained by the government due to exemptions, deductions, tax credits, deferrals, or lower tax rates. Tax expenditure functions as a subsidy for certain economic activities that require development as a form of government intervention (Tax Policy Center, 2022).

 

In the 2022 tax expenditure report, the government estimates that the amount of tax expenditure will increase from year to year in line with the development of economic growth. The government projects that the amount of tax expenditure in 2024 and 2025 will be 374.5 trillion and 421.7 trillion, respectively. The details of actual and projected tax expenditures can be seen in the following table:

 

Source: Ministry of Finance, 2023.

 

Based on the table above, it can be seen that in 2023, there will be a significant increase in tax expenditure for tax types in the form of value-added tax, income tax, and import duty. Through this article, we will discuss the types and forms of fiscal incentives provided by the government through the tax expenditure scheme, especially those related to value-added tax.

As explained above, VAT incentives will contribute the most to tax expenditure in 2023. The amount of VAT tax expenditure in 2023 has increased by 16.6 trillion compared to the previous year. There are six types of VAT facility categories provided by the government during 2023, as follows:

 

 

1. Not required to collect, deposit, and report, consisting of:

• VAT facilities are not required to be collected, deposited, and reported by small entrepreneurs (entrepreneurs with a turnover of not more than IDR 4.8 billion per year);

2. VAT not imposed or payable, which consists of:

• VAT not imposed on religious services.
• VAT not imposed on public transportation services;
• VAT not imposed on catering services: food and beverage services that are furnished with equipment and supplies for the process of making, storing, and serving, to be served at the location desired by the customer.

3. Uncollected VAT, which consists of:

• Uncollected VAT and STLG on the import of gift goods for worship, social charity, culture, and natural disaster relief.
• Uncollected VAT and STLG on imports of goods for scientific research and development.
• Uncollected VAT and STLG on imports of goods for museums, zoos, and goods for nature conservation;
• Uncollected VAT and STLG on imports of goods for the needs of the blind and other disabled;
• Uncollected VAT and STLG on crates or other packaging containing corpses or ashes;
• Uncollected VAT and STLG on goods transferred by migrant workers, students studying abroad, civil servants, TNI or POLRI members who serve abroad for at least 1 year;
• Uncollected VAT and STLG on personal belongings of passengers, a crew of the means of transportation, border crossers, and consignments up to a certain amount;
• Uncollected VAT and STLG on the import of goods by international bodies registered with the Government of Indonesia and its officials who are on duty in Indonesia and do not hold Indonesian passports;

4. VAT exemption, which consists of:

• VAT exemptions on general textbooks, holy books, and religious textbooks;
• VAT exemptions on the delivery of public houses, boro huts, student and student dormitories, and other housing;
• VAT exemptions on rental services of simple flats, simple houses, and very simple houses;
• VAT exemptions on residential units of simple flats owned by those obtained through credit or financing of subsidized home ownership that meets the statutory provisions;
• VAT exemptions on services rendered by contractors for the construction of simple and very simple houses and the construction of places solely for worship purposes;
• VAT exemptions on goods produced from marine and fisheries business activities;
• VAT exemptions on electricity, except for houses with power above 6600 VA;
• VAT exemptions on clean water;
• VAT and STLG exemptions on the delivery of goods, intangible taxable goods, and taxable services carried out in the Free Zone; the entry of goods, intangible taxable goods, and taxable services into the Free Zone from outside the Customs Area; the entry of goods, intangible taxable goods, and taxable services into the Free Zone from other Free Zones; Uncollected VAT and STLG on the entry of goods into the Free Zone from other places within the Customs Area; the entry of goods, intangible taxable goods, and taxable services into the Free Zone from Bonded Storage or Special Economic Zones;
• VAT and STLG exemptions from the import/acquisition of Taxable Goods and Services and the utilization of Taxable Goods and Services by International Bodies and their officials;
• VAT not imposed on basic needs;
• VAT not imposed on medical health services;
• VAT not imposed on social services;
• VAT not imposed on mailing services with stamps;
• VAT not imposed on financial services;
• VAT not imposed on insurance services;
• VAT not imposed on education services;
• VAT not imposed on labor services;
• VAT not imposed on money transfer services by postal money order;
• VAT not imposed on public telephone services using coins.

5. Reduction of tax basis, or Dasar Pengenaan Pajak (DPP)

• Self-use of Taxable Goods and/or Taxable Services using another value, namely Selling Price or Replacement after deducting gross profit;
• Gift of taxable goods and/or taxable services using another value, namely the selling price or reimbursement after deducting gross profit;
• Delivery of tobacco products using another value, namely the retail selling price;
• Delivery of package delivery services using another value, namely 10% of the amount billed or the amount that should have been billed;
• Delivery of travel agency services or tourism agency services using another value that is 10% of the amount billed or the amount that should have been billed.
• Delivery of transportation management services (freight forwarding), in which the invoice for transportation management services contains transportation costs (freight charges) using another value of 10% of the amount billed or should have been billed;
• VAT on Self-Building activities is 20% of the total costs incurred and/or paid to build buildings, excluding the acquisition price of land;
• Delivery of Certain Agricultural Products Using the Other Value DPP;
• Reduction of the tax basis of STLG by 75 percent of the selling price for motor vehicles using advanced diesel/petrol engine technology, dual petrol gas engine, (CNG/LGV converter kit), biofuel engines, hybrid engines, and CNG/LGV dedicated engines, with fuel oil consumption ranging from 20-28 km/liter;
• Reduction of the tax basis of STLG by 50 percent of the selling price for motor vehicles using advanced diesel/petrol engine technology, dual petrol gas engines (CNG/LGV converter kit), biofuel engines, hybrid engines, and CNG/LGV dedicated engine, with fuel oil consumption of more than 28 km/liter;
• Reduction of the base tax imposition of STLG by 0 percent of the selling price for motor vehicles included in the energy-efficient and affordable car program (LCGC), other than sedans or station wagons;
• Zero percent STLG for electric vehicles;
• Lower VAT for hybrid vehicles.

 

Along with the withdrawal of the COVID-19 pandemic status by the government in 2023 and in line with the improving economic conditions, the government will no longer provide VAT facilities in the context of handling the pandemic. For the record, VAT facilities in the context of the pandemic were provided from 2020 to 2022, which included the following five types of facilities:

1. VAT DTP on the delivery of taxable goods and services for COVID-19 handling activities;
2. VAT DTP on newsprint and/or magazine paper;
3. VAT DTP on the delivery of landed houses and residential units of flats;
4. VAT DTP on the rent of a room or building;
5. STLG DTP on the delivery of taxable goods classified as luxury in the form of certain motor vehicles.