Value Added Tax Aspects of Fintech Loans
Jakarta, Ideatax -- In the previous article, we have discussed the Income Tax on the financial technology industry or commonly referred to as fintech. This time, we will detail the Value Added Tax aspect on transactions conducted in the fintech industry, especially on lending and borrowing activities which are the core business of the industry.
Similar to the Income Tax on the fintech industry, the Value Added Tax aspect of the industry that grew rapidly during the pandemic is clearly regulated in the Minister of Finance Regulation Number 69 of 2022 concerning Income Tax and Value Added Tax on the Implementation of Financial Technology.
In the consideration of the regulation, which is a technical guideline of the Law on Harmonization of Tax Regulations, among others, it is stated that one of the main objectives of the issuance of Minister of Finance Regulation No. 69 of 2022 is to provide legal certainty and administrative convenience in fulfilling tax obligations on the implementation of financial technology.
As known, through Law Number 7 Year 2022 on Harmonization of Taxation Regulations, the Government no longer makes financial services as services exempted from the imposition of Value Added Tax. The implication is that financial services, including services provided by fintech entrepreneurs, are services subject to Value Added Tax.
Regulation of the Minister of Finance Number 69 of 2022, among others, regulates that there are at least eight types of financial technology services that are subject to Value Added Tax, including: payment services, settlement services, capital raising services, lending services, investment management services, online insurance product regulation services, market support services and digital finance support services.
Due to the wide range of services subject to Value Added Tax on the operation of financial technology, this article will only focus on VAT on payment services and lending services organized by fintech providers.
VAT on Payment Services
The regulation of payment services by fintech that is subject to VAT includes the regulation of electronic money services, electronic wallets, payment gateways, switching services, clearing, final settlement and fund transfers. What is meant by electronic money services is the activity of providing digital money which includes: registration of electronic money holders, top-ups, transaction payments, fund transfers and cash withdrawals.
While what is meant as electronic wallet services include top up services, cash withdrawals through other parties, transaction payments, transaction payments, bill payments, fund transfers and pay later services. However, this regulation also limits that money in electronic media or electronic wallets including bonus points, top up points, reward points and loyalty points are intangible taxable goods that are not subject to VAT.
On the other hand, what is meant as payment gateway services is the regulation of financial services that include forwarding payment transactions (facilitator) from merchants to acquirers or issuers of payment instruments using cards, forwarding payment transactions from merchants to acquirers and settling payments from acquirers.
Entrepreneurs who organize payment system service activities as mentioned above and have been confirmed as Taxable Entrepreneurs, have the obligation to collect, deposit and report Value Added Tax on the delivery of taxable services as above.
VAT is calculated by multiplying the VAT rate by the Tax Imposing Base which can be in the form of fees, commissions, merchant discount rates or other rewards by any name and form received by Taxable Entrepreneurs organizing payment system services. Included as income is the administration fee for issuing electronic money.
However, this regulation also regulates that there are several payment service deliveries that get VAT exemption facilities, namely fund transfer services to customers who own current accounts, time deposits, certificates of deposit, savings and/or other equivalent forms. Thus, for these transactions, the delivery gets a VAT exemption.
VAT on Lending and Borrowing Services
As mentioned above, one of the core businesses of the fintech industry that is subject to VAT is lending and borrowing services. Regulation of the Minister of Finance Number 69 of 2022 regulates that lending and borrowing services are services provided by fintech providers to lenders or loan recipients who have debts or receivables due to an agreement whose source of funds comes from the lender.
Furthermore, this regulation also regulates that lending and borrowing service providers that have been confirmed as taxable entrepreneurs have the obligation to collect, deposit and report value-added tax on the delivery of lending and borrowing services.
Value Added Tax on lending and borrowing services is calculated by multiplying the VAT rate with the tax base in the form of fees, commissions, or other rewards by any name and form, including the difference over loan interest. Thus, based on this regulation, fintech lending and borrowing service providers have the obligation to issue tax invoices for any fees, commissions or other rewards received in connection with the regulation of loans.
Based on the discussion above, it can be concluded that financial technology service providers, whether registered with OJK or not, as long as they provide payment services and lending services, must be confirmed as Taxable Entrepreneurs.
After being confirmed as a Taxable Entrepreneur, the organizer of payment and lending services has the obligation to collect, deposit and report VAT on each delivery made by the organizer. Furthermore, VAT is calculated by multiplying the VAT rate of 11% or 12% with the Tax Imposition Base in the form of fees, commissions or other rewards in any name and form received for the delivery of payment services or lending and borrowing services.
That's a brief overview of the VAT aspects of fintech services, if you have any questions or need further assistance, Ideatax is always ready to help.
Law No. 8 of 1983 on value added tax on goods and services and sales tax on luxury goods
Law No. 7 of 2021 on harmonization of tax regulations
Minister of Finance regulation number 69 of 2022 concerning income tax and value added on the implementation of financial technology
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