VAT on Education Services - Ideatax
Jakarta, ideatax -- July and August are associated with the start of the school year—the month when the new school year begins for primary and secondary education. According to various sources, the new school year in Indonesia started in July for the first time in 1978. Prior to 1978, the school year in Indonesia started in January and ended in December each year. However, through Law Number 0211/U/1978, the then Minister of Education, Daoed Jusuf, changed the school year to July - June the following year.
There are several reasons for the change. First, Education budgeting is considered difficult if the school year starts in January and ends in December. Second, the new school year abroad normally starts in July and ends in June of the following year. Therefore, to bring the school year in Indonesia in line with the new school year abroad, the Government changed the regulations regarding the school year.
Along with various technical regulations in the field of education, the Government also harmonizes the tax regulations on education services. Through Article 4A of Law Number 8 of 1983 concerning Value Added Tax and Sales Tax on Luxury Goods, the Government regulates that education services are one of the services exempted from the object of VAT. However, in Law Number 7 of 2021 concerning Harmonization of Tax Regulations, the Government no longer includes educational services as a negative list of taxable goods or services subject to VAT, but is categorized as strategic goods or services whose delivery is exempt from the imposition of VAT.
The Previous Regulation
According to the previous VAT Law, education services were one of the services which delivery was exempted from the imposition of VAT (negative list). This regulation was further elaborated through Minister of Finance Regulation No. 223/PMK.011/2014 concerning Criteria for Educational Services that are Not Subject to Value Added Tax. Based on the regulation, among others, it is regulated that there are two groups of education services that are not subject to VAT.
First, school education services such as general education, vocational education, special education, official education, religious education, academic education, and official education. Second, out-of-school education services which include non-formal education services and informal education services.
School education services or commonly referred to as formal education services include early childhood education services (toddler), elementary education, secondary education and higher education. Meanwhile, non-formal education services include life skills education services, youth education, women's empowerment education, skills education and job training and equality education.
The definition of informal education services, on the other hand, includes education services conducted by families and neighborhoods in the form of self-learning activities.
To be exempted from the imposition of VAT, Education service providers must meet two main requirements. First, the Education service provider should obtain an education license from the authorized central and local government agencies. Second, the Education service provider must organize formal, informal and non-formal education at every level of education.
Although the Minister of Finance Regulation No. 223/2014 has detailed the limitations of education services that are exempted from value-added tax, it also regulates education services that are subject to value-added tax, among others as follows:
Education services, both formal education, non-formal education, and informal education, which are not included in the details of education services as referred to in Article 4 of PMK-223/PMK.011/2014;
Formal education services or non-formal education services delivered by education units that do not obtain education licenses from the authorized Central Government or Local Government agencies; or
Education services that become an integral unit with the delivery of other goods and/or services.
The Current Regulation
With the enactment of the Law on Harmonization of Tax Regulations, since 2021 the delivery of Education services is no longer a delivery of services that are exempt from the imposition of VAT, but rather a delivery of strategic goods that receive VAT exemption facilities.
The change in the status of education services certainly has several implications. First, the delivery of taxable services is a VAT object even though it receives a VAT exemption facility. Second, for the delivery of education services, education service providers are required to make tax invoices for each delivery. Third, education service providers cannot credit input tax on the acquisition of JKP that receives VAT exemption facilities.
The regulations in the HPP Law are then derived through Government Regulation Number 49 of 2022 concerning Value Added Tax Exempted and Value Added Tax or Value Added Tax and Sales Tax on Luxury Goods Not Collected on the Import and/or Delivery of Certain Taxable Goods and/or Delivery of Certain Taxable Services and/or Utilization of Certain Taxable Services from outside the Customs Area.
Article 16 of Government Regulation No. 49 of 2022 regulates that there are two types of education services that are exempt from the imposition of VAT: School education and out-of-school education. School education is the service of providing education in formal channels as regulated in the laws and regulations in the field of national education system which includes early childhood education, primary education, secondary education and higher education conducted by education units that have formal education licenses from the central government or regional governments in accordance with their authority.
On the other hand, out-of-school education is the service of providing education on non-formal channels as regulated in the laws and regulations in the field of the national education system which includes life skills education, early childhood education, youth education, women's empowerment education, literacy education, skills education and job training, equivalency education and other education aimed at developing the abilities of students conducted by educational institutions that have formal education licenses from the central government or local governments in accordance with their authority.
That is the explanation of VAT on education services. Ideatax will be pleased to help if you have any difficulties.
Law No. 0211/U/1978
Law No. 8 of 1983 concerning Value Added Tax and Sales Tax on Luxury Goods
Law No. 7 of 2021 concerning Harmonization of Tax Regulations
Government Regulation No. 49 of 2022 concerning Value Added Tax Exempted and Value Added Tax or Value Added Tax and Sales Tax on Luxury Goods Not Collected on Import and/or Delivery of Certain Taxable Goods and/or Delivery of Certain Taxable Services and/or Utilization of Certain Taxable Services from outside the Customs Area.
Minister of Finance Regulation No. 223/PMK.011/2014 on Criteria for Educational Services that are Not Subject to Value Added Tax
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