Indonesia reconfirms and clarifies non-VATable goods and services

To VAT or not to VAT is the question - especially following Indonesia's HPP law. Fortunately, recent regulations, Government Regulation No. 49 Year 2022 specifically, (re)confirms and clarifies significant VAT facilities that are still applicable after the implementation of the"HPP Law.

But first, let's take it back to basics. 

The Harmonization of Tax Regulations Laws

The introduction of the Tax Regulation Harmonization Law, passed by the Indonesian House of Representatives (DPR), dates back to October 2021 and is commonly referred to as the HPP Law. HPP Law brought along significant changes for businesses in terms of tax calculations. In addition, it also introduced new taxes and made substantial updates to the current taxes and VAT procedures.  

Amongst the updates, HPP Law also sought to reclassify certain goods and services as expenses in which VAT : 

will not be collected at all,

is partially collected

is exempted, either temporarily or permanently, rom imposition 

This reclassification aimed to encourage export, downstream industry and to accommodate the possibility of agreements with other countries in trade and investment. However, the introduction of the reclassification of  goods and services came with some confusion which the Indonesian government sought to address through issuing three additional implementing regulations in December 2022.. One of the three implementing regulations (Government Regulation No. 49 Year 2022) focuses on  the categories and classifications of non-VATable goods and services. 

Circumstances where VAT is not due or collected

Government Regulation No. 49 Year 2022 (“GR-49”) specifies that there are three distinct cases when VAT is not due/collected and can be categorised as follows; 

• Specific non-VATable goods and services where VAT is not due. 
• Certain VAT-able goods and services and strategic VAT-able goods and services where VAT is exempt.
• Certain VAT-able goods and services and strategic VAT-able goods and services where VAT is not collected. 

What does this mean? 

It is now confirmed that all input VAT incurred concerning the sale of non-VAT-able goods and services, and the sale of VAT-exempt goods and services are not creditable under the Output/Input VAT credit mechanism. However, Input VAT is creditable if it pertains  to the sale of VAT-able goods/services subject to VAT-not-collected.

In addition,  GR-49 introduced a  significant re-categorisation of  health, social, financial and insurance, education, public transportation, and outsourcing services. Prior to the introduction of  GR-49, these services fell under the non-VAT-able services category. However, the most recent updates confirm that these services  are now classified as strategic VAT-able services subject to VAT-exempt facilities.. Further administrative guidance is expected to be published soon.

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When implementing due diligence, businesses are encouraged to pay close attention to the recent changes and how they could affect the administration of their VAT obligations. Fortunately, you don't have to exhaust your resources to stay in the loop. Instead, navigate the VAT landscape and simplify your VAT recovery with experts in your corner.