VAT on Self-Build Activities

Jakarta, Ideatax -- The Central Bureau of Statistics (hereinafter referred to as BPS) recorded an increase in Gross Domestic Product (hereinafter referred to as GDP) from construction activities during the first quarter of 2023 (BPS, 2023). In the first quarter of 2023, the GDP of the construction industry amounted to IDR 285.48 trillion. Whereas in the same period the previous year, the construction industry only contributed 284.58 trillion to GDP (BPS, 2022). This means that there was an increase of around 1 trillion in construction activities compared to the previous year.

 

In the Indonesian Standard Business Field Classification, BPS defines construction activities into three main classifications: building construction, civil building construction, and special construction (Statistics Indonesia, 2020). Furthermore, BPS classifies Building Construction into the activities of constructing, maintaining, and/or rebuilding buildings used for living quarters, such as houses, residential houses including renovations of residential buildings whether or not they are carried out by construction (real estate) entrepreneurs.

 

In general, every delivery of construction services from developers to consumers will be subject to VAT tax. In addition, the developer is also required to make a tax invoice and report the transaction in the VAT return. However, consumers often build or renovate their own homes. For self-build activities carried out by consumers, is VAT payable? Through this article, we will discuss more about the VAT aspects of self-build activities.

 

Definition

Article 16 C of Law Number 8 of 1983 concerning Value Added Tax and Sales Tax on Luxury Goods as amended by Law Number 7 of 2021 concerning Harmonization of Tax Regulations stipulates that VAT is imposed on the delivery of goods or services, including self-build activities carried out not in business activities by individuals or entities whose building results are used by themselves or used by other parties.
Based on the foregoing, it is clear that self-build activities carried out by both individuals and entities are subject to Value Added Tax.

 

Criteria

The provisions of Article 16 C of the VAT Law are further regulated in Ministry of Finance Regulation Number 39 of 2010 concerning Limitations and Procedures for Imposition of Value Added Tax on Self-build Activities as amended by Ministry of Finance Regulation Number 163 of 2012.
Article 2 of Ministry of Finance Regulation Number 39 Year 2010 stipulates that there are three criteria for buildings subject to VAT on self-build activities, namely the main construction consists of wood, concrete, masonry or the like, and/or steel, which is intended as a residence or place of business activities, with a UAS area of at least 200 m2 (two hundred square meters).
This means that self-construction activities that do not meet any of the above criteria will not be subject to VAT on self-construction.

 

Tax Rate

VAT = 10%*20%*Cost

As in the case of delivery of goods/services in general, there is no difference in the VAT rate for self-build activities, which is 10%. However, for self-build activities, the tax base imposed is 20%. The average effective VAT rate for self-build activities is 2% of the total costs incurred or paid to build the building.

 

Compared to the previous regulation, the effective rate stipulated in Ministry of Finance Regulation No. 163/2012 of 2% is much lower. However, in the previous provision, the effective rate of VAT on self-construction was set at 4%. This proves that government regulations are quite adaptive in responding to the needs of taxpayers.

 

Time of Liability and Payment

Article 4 of Ministry of Finance Regulation No. 163/2012 stipulates that taxpayers start paying VAT on self-construction when the construction process begins until the construction is completed.
The implication is that as long as there are expenditures for self-construction activities, taxpayers have the obligation to pay VAT on self-construction every month. Payment of VAT on self-construction activities is made by the Taxpayer no later than the 15th of the following month by using a Tax Payment Slip.

 

Administratively, VAT payments on self-build activities are made with two mechanisms, namely: first, if the building constructed is within the working area of the Tax Office where the individual or entity carrying out self-build activities is registered, then the tax ID number column on the Tax Payment Slip is filled in with the tax ID number of the individual or entity carrying out self-build activities.

Conversely, if the building is built outside the working area of the Tax Office where the individual or entity carrying out self-build activities is registered, then the tax ID number column on the tax deposit letter is filled in with the number "0" in the first 9 digits and the Tax Office code in the next 3 digits.

For example, Mr. Smith who is registered at KPP Pratama Setiabudi conducts self-construction in Serpong. Therefore, the KPP where Mr. Smith is registered is different from the KPP where the construction location is, Mr. Smith uses tax ID number 00.000.000.0-411.000.

After making a VAT payment on his self-constructed building, Mr. Smith has an obligation to report the payment to the Serpong Tax Office no later than the end of the following month.

First Mechanism: XX.XXX.XXX.X-XXX.XXX Tax ID number

 

Second Mechanism: 00,000,000.0-XXX. 000 Tax Office Code

 

Sanctions

Article 9 of Ministry of Finance Regulation No. 163/2012 stipulates that taxpayers who conduct self-construction activities but do not deposit VAT on self-construction activities may be subject to audit and administrative sanctions in accordance with applicable regulations.
In addition, the Tax Office is also authorized to issue tax ID number in office, issue a warning letter, and issue an appeal letter for self-build activities. However, Ministry of Finance Regulation number 163 of 2012 also regulates that input tax on VAT for self-build activities cannot be credited.

If you need more information, Ideatax is here to help you.

 

References

Central Bureau of Statistics. (2020). Standard Classification of Indonesian Business Fields (KBLI) 2020. Jakarta: CV. Nario Sari.

BPS. (2022, May 12). [2010 Series] GDP 2010 Series (Billion Rupiah), 2022. Retrieved from Badan Pusat Statistik: https://www.bps.go.id/indicator/11/65/2/-seri-2010-pdb-seri-2010.html

BPS. (2023, May 18). [2010 Series] GDP 2010 Series (Billion Rupiah), 2023. Retrieved from Badan Pusat Statistik: https://www.bps.go.id/indicator/11/65/1/-seri-2010-pdb-seri-2010.html

 

 

Related Regulations

• Law Number 8 of 1983 on Value Added Tax and Sales Tax on Luxury Goods as amended by Law Number 7 of 2021 on Harmonization of Tax Regulations

• Ministry of Finance Regulation Number 39 of 2010 concerning Limits and Procedures for Imposition of Value Added Tax on Self-build Activities as amended by Ministry of Finance Regulation Number 163 of 2012