Government Regulation No. 44 of 2022 Concerning Application of VAT on Goods and Services and Sales Tax on Luxury Goods

On December 2, 2022, the Government issued Government Regulation Number 44 of 2022 concerning the Implementation of Value Added Tax on Goods and Services and Luxury Goods Sales Tax. This regulation is a derivative rule of Law Number 7 of 2021 concerning the Harmonization of Tax Regulations. It also updates Government Regulation Number 1 of 2012 concerning the Implementation of Law Number 8 of 1983 concerning Value Added Tax on Goods and Services and Luxury Goods Sales Tax, as amended several times, most recently by Law Number 42 of 2009 concerning the Third Amendment to Law Number 8 of 1983 concerning Value Added Tax on Goods and Services and Luxury Goods Sales Tax.

This regulation consists of 33 articles divided into 9 chapters. The first chapter contains general provisions. The second chapter covers the Confirmation of Taxable Entrepreneurs and the Appointment of Other Parties to Collect, Deposit, and/or Report Value Added Tax or Value Added Tax and Luxury Goods Sales Tax. The third chapter deals with taxable goods and taxable services. The fourth chapter discusses the Basis of Taxation, while the fifth chapter elaborates on the Calculation of Value Added Tax or Value Added Tax and Luxury Goods Sales Tax.

As a derivative regulation of the VAT cluster in the tax law, Government Regulation Number 44 of 2022 introduces various new provisions. One of them pertains to the joint liability of buyers or service recipients for the payment of VAT and Luxury Goods Sales Tax. This means that if VAT cannot be collected from the seller of taxable goods or provider of taxable services and the buyer or service recipient cannot provide proof of payment of VAT/Luxury Goods Sales Tax, then the buyer or service recipient becomes jointly liable for the payment of such VAT/Luxury Goods Sales Tax.

Another provision in this regulation is the appointment of other parties to collect, deposit, and report VAT and Luxury Goods Sales Tax. The parties referred to in this provision are those directly involved in or facilitating transactions between parties engaging in transactions, including those involved in electronic commerce (e-commerce) activities, whether located within or outside customs areas.

Furthermore, the regulation also addresses the obligations of VAT and Luxury Goods Sales Tax on self-use and gratuitous provision. It specifies that self-use and/or gratuitous provision constitute taxable transactions for VAT and Luxury Goods Sales Tax purposes. However, specific limitations and procedures will be further regulated by the Ministry of Finance.

The regulation's discussion on AYDA (assets taken over) is particularly interesting. Over the years, AYDA has been a contentious issue between tax authorities and taxpayers, especially in the banking sector. Hence, through Article 10 of Government Regulation Number 44, the government asserts that the transfer of rights over Capital Goods because of an agreement, including rights to land collateral, fiduciary guarantees, mortgages, pledges, and other types of encumbrances, is considered a taxable transfer of Capital Goods subject to VAT.

Regarding the calculation method, this Regulation accommodates the use of deemed VAT. This means that Taxable Entrepreneurs with annual business turnover not exceeding a certain amount, engaging in certain activities, and making specific transfers of Capital Goods or Taxable Services, may apply and deposit VAT and Luxury Goods Sales Tax at predetermined rates.

In essence, Government Regulation Number 44 of 2022 covers a wide range of aspects related to VAT and Luxury Goods Sales Tax. Therefore, other aspects of VAT addressed in this regulation will be discussed in the next tax flash.