VAT on Imported Digital Products: Opportunities and Challenges

VAT on Imported Digital Products: Opportunities and Challenges

PPN - 28 Jun, 2023 09:06 WIB

Jakarta, Ideatax -- Through Press Release Number SP-22/2023 dated June 7, 2023, DGT reported that as of May 2023, there have been 151 business actors appointed as VAT collectors of imported digital products. The DGT also reported that tax revenue from VAT on imported digital products until the second quarter of 2023 amounted to IDR 12.57 trillion, consisting of: VAT on imported digital products for fiscal year 2020 amounting to IDR 731 billion, VAT on imported digital products for fiscal year 2021 amounting to IDR 3.9 trillion, VAT on imported digital products for fiscal year 2022 amounting to IDR 5.51 trillion, and VAT on imported digital products for fiscal year 2023 amounting to IDR 2.4 trillion (second quarter of 2023).

 

VAT on imported digital products is a value-added tax imposed on trade where transactions are conducted through a series of electronic devices and procedures. VAT on imported digital products is not a new type of tax. VAT on imported digital products is an expansion of the definition of VAT, which so far has not touched trade transactions through electronic systems.

 

VAT on imported digital products was first regulated in Government Regulation in Lieu of Law number 1 of 2020 as amended by Law Number 2 of 2020 concerning State Financial Policy and Financial System Stability in the Context of Handling the Corona Virus Disease 2019 (COVID-19) Pandemic and/or in the context of dealing with threats that endanger the national economy and/or financial system stability.

 

Through this emergency regulation issued during the Covid-19 pandemic, the Government regulates that one of the policies taken by the government in order to cope with the Covid-19 outbreak is the imposition of taxes on electronic transactions. There are two types of taxes imposed on electronic transactions: Value Added Tax (VAT) and Income Tax (PPh).

 

In the consideration, it is stated that there are three objectives of imposing VAT on imported digital products. First, to create a level playing field between conventional business actors and digital economy business actors as well as between domestic and foreign digital economy business actors. Second, it provides legal certainty to collect VAT on the utilization of Intangible Taxable Goods and/or Services from outside the Customs Area within the Customs Area through Electronic Commerce. Third, optimizing tax revenue.

 

VAT on imported digital products is imposed on the utilization of intangible taxable goods or taxable services from outside the customs area into the customs area through an electronic trading system. VAT on imported digital products is collected, paid, and reported by foreign traders, foreign service providers, and organizers of trade through electronic systems designated by the Ministry of finance.

 

For example, a buyer from Indonesia makes a book purchase transaction to Amazon International. Amazon International does not have a representative office (BUT) in Indonesia and Amazon International is not registered as a taxpayer in Indonesia. On the other hand, Amazon has been appointed by the Indonesian Government as a VAT collector for imported digital products. Therefore, Amazon has the obligation to collect, remit, and report the book purchase transaction to the Indonesian government.

 

Designation of PMSE VAT collector

To be appointed as a VAT collector on imported digital products, foreign business actors must meet several criteria, including meeting the transaction value and circulation amount that exceeds a certain amount within twelve months. We can find this regulation in the Ministry of Finance Regulation number 48 of 2020 concerning Procedures for Appointing Collectors, Collecting, and Depositing, and Reporting Value Added Tax on the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside the Customs Area within the Customs Area through Trade Through Electronic Systems as amended by Ministry of Finance Regulation Number 60 of 2022.

 

The amount of transaction value and traffic that becomes the threshold is regulated in Director General of Taxes Regulation Number 12 of 2020. Based on the Regulation of the Director General of Taxes Number 12 of 2020, it is regulated that business actors appointed as VAT collectors on imported digital products are business actors who have a transaction value of more than 600 million rupiah in one year and or have traffic of more than 12 thousand in one year.

 

As explained earlier, as of May 2023, there are 131 businesses designated as VAT collectors on imported digital products, including the following:

VAT collectors of imported digital products as above are given an identity number as a means to carry out their tax obligations. The identity number is not a tax ID number, but the identity number has the same function as a tax ID number.

 

Criteria for buyers who are subject to VAT on imported digital products

As you know, VAT is a tax on domestic consumption. So, to be subject to VAT on imported digital products, there are the following criteria:

  • The buyer is located in Indonesia. This means having a correspondence address in Indonesia or choosing Indonesia as the registration address.

  • Buyers use debit, credit and other payment methods available in Indonesia;

  • Transactions using internet protocols in Indonesia and/or using telephone numbers registered in Indonesia.

 

Obligations of VAT Collector on Imported Digital Products

VAT collectors on imported digital products have several obligations, including collecting, making proof of VAT collection, making payments and reporting the collection to the DGT. Furthermore, VAT collectors on imported digital products are obliged to collect VAT at 11% of the value of money paid by the buyer and/or service recipient. VAT is collected at the time of payment by the buyer of goods/services or service recipient.

 

The VAT collection results must be deposited by the VAT collector on digital products to the state treasury account no later than the end of the following month after the collection. VAT deposits on imported digital products can use rupiah, US dollars, or other currencies determined by the Director General of Taxes.

 

Aside from having the obligation to collect and deposit, VAT collectors on digital products also have the obligation to make proof of collection. Article 7 of PMK No. 48 of 2020 regulates that proof of VAT collection on imported digital products can be in the form of tax invoices, sales notes, order receipts, or other equivalent documents, and include VAT collection and payment. The proof of collection is a certain document whose position is equal to a tax invoice.

 

After collecting, depositing and making proof of collection, the final obligation of the import VAT collector is to report the VAT that has been collected to the Directorate General of Taxes. The report, at least, contains information on the number of Goods Purchasers and/or Service Recipients, the amount of payment of the amount of Value Added Tax collected; and details of Value Added Tax transactions collected for each tax period.

 

This is a brief explanation of VAT on import of digital products, if you need further assistance, you can contact Ideatax.

 

 

Related regulations

  • Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability in the Context of Handling the Corona Virus Disease 2019 (Covid-19) Pandemic and/or in the Context of Facing Threats that Endanger the National Economy and/or Financial System Stability

  • Ministry of Finance Regulation Number 48 of 2020 concerning Procedures for Appointment of Collectors, Collection, and Deposit, and Reporting of Value Added Tax on the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside the Customs Area within the Customs Area through Trading Through Electronic Systems as amended by Ministry of Finance Regulation Number 60 of 2022

  • Regulation of the Director General of Taxes number 12 of 2020 concerning Limitation of Certain Criteria for Collectors and Appointment of Collectors, Collection, Deposit, and Reporting of Value Added Tax on the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside the Customs Area within the Customs and Excises Territory Within The Customs And Excises Territory Through Electronic Commerce

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