Since 1 April 2022, the government has increased the Value Added Tax (VAT) from 10 per cent to 11 per cent. This VAT rate increase will reportedly be gradual until 12 per cent in 2025.

The underlying law is Law No. 7 of 2021 on Harmonisation of Tax Regulations (HPP Law) Chapter IV Article 7 paragraph (1) on VAT.

Article 7 paragraph (3) explains that the government can change the VAT rate with a maximum limit of 15 per cent and a minimum of 5 per cent. The government also regulates this rate change through a Government Regulation.

Considering that VAT is also one of the sources of state revenue, the increase eventually reaped the pros and cons.

So, what is the basis for the 11 per cent VAT rate increase policy and how is it calculated?

Reasons for the 11 Percent VAT Increase
The government increased the VAT rate to 11 per cent as an effort to increase state revenue in the tax sector, especially after the Covid-19 pandemic.

The government did not get optimal state revenue, while they maximised state spending during the pandemic, which ultimately added to the state's burden. As a result, the government was forced to go into debt to balance the balance sheet to fulfil the needs of the people during the pandemic.

Finance Minister Sri Mulyani said the average VAT worldwide is 15 per cent. Indonesia is at 11 per cent and will gradually increase to 12 per cent by 2025.

So, the 11 per cent VAT increase is to patch up the state's burden and strengthen the foundation of taxation, considering that taxes are the largest source of state revenue today.

Goods and Services Subject to 11 Percent VAT
The change in VAT rate raises many questions from the public, one of which is what goods or services are subject to 11 per cent VAT? Here is the review:

1. Crypto
The imposition of VAT and income tax on crypto asset trading transactions is stated in PMK 68/2022. This regulation has also been effective on 1 May 2022. The government imposes VAT on:

• Intangible taxable goods in the form of crypto assets by crypto asset sellers,
• Electronic system trading organisers charge tax on the electronic facilities they provide for crypto asset transactions,
• Taxable services in the form of crypto asset transaction verification services and/or crypto asset miner group management services by crypto asset miners.

2. Fintech Services
The government imposes income tax and VAT on financial technology or fintech services, in accordance with the rules in PMK 69/2022 which took effect on 1 May 2022.

4.Used Car Purchases

The government imposes a VAT rate of 1.1% on the purchase of used cars from entrepreneurs, and this rate will increase to 1.2% as the VAT rate increases. This regulation is stated in PMK 65/2022 concerning VAT on the Delivery of Used Motor Vehicles.

The amount of 1.1% comes from the calculation of 10% multiplied by the VAT rate of 11 per cent. Taxable entrepreneurs must submit the VAT periodic tax return starting April 2022.

3. Non-Subsidised LPG
The government also imposes VAT on the distribution of 5.5 kg and 12 kg non-subsidised LPG. This is stated in PMK 62/2022 concerning VAT on Delivery of Certain LPG. Meanwhile, the government covers the full 11 per cent VAT for 3 kg LPG, so consumers are not subject to VAT because this LPG is subsidised.

4. Internet Packages
Mobile operators have adjusted the 11 per cent VAT rate, so the prices of internet packages have also increased.

5. Banking
Banking services are also affected by the 11 per cent VAT. The banking services that are subject to this new VAT rate are wealth management products for Safe Deposit Box (SBD)/Robotic Safe Deposit Box (RSDB) rental fees. Here is the list:

• Mutual funds
• Securities

Goods and Services that are 11 Percent VAT-Free
Based on the HPP Law, not all goods and/or services are subject to the new 11 per cent VAT rate. The goods and/or services that are free from the new VAT rate are:

• Basic necessities
• Health services
• Education services
• Social services
• Financial services (current accounts, long-term deposits, savings, telecommunications facilities, bills of exchange, cheques, financing with sharia principles, etc.)
• In addition to the list above, the government also provides exemptions for certain types of goods/services in certain business sectors.

Source: kontrakhukum.com