Overpayment from Sales to VAT Collecting Agents: Accelerated Refunds?

Question:

ALLOW me to introduce myself. My name is Wira. I am a tax staff member at a private company operating in the furniture sector. Our company is a furniture manufacturer with its own factory in Jepara.

Recently, the majority of our sales have been directed to government agencies, in line with the many government projects currently underway. In respect of those sales, the payments we receive do not include value added tax (VAT), as the VAT is collected and remitted directly by the government agency. At the same time, we continue to pay VAT on purchases of raw materials. This implies that our periodic VAT returns almost always show an overpayment status.

In connection with this situation, I have heard that companies with an overpayment arising from sales to VAT collecting agents may be eligible for accelerated refund facilities. My question is: is this correct? If so, what conditions must we satisfy? Thank you.

Wira, Jepara.

Answer:

Thank you for your question, Mr Wira. Before answering your question above, it would be helpful to first understand the basic concept of VAT collected by a VAT collecting agent. The provisions regarding this concept are set out in Law No. 8 of 1983 on Value Added Tax on Goods and Services and Sales Tax on Luxury Goods, as last amended by Law No. 6 of 2023 on the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into a Law (VAT Law).

Pursuant to Article 3A paragraph (1) of the VAT Law, a taxable person (PKP) supplying taxable goods (BKP) or taxable services (JKP) is the party obliged to collect VAT. In other words, VAT is, in principle, collected by the seller.

However, that provision does not apply to all supplies. Where a taxable person performs a supply to a VAT collecting agent, the party obliged to collect, remit and file VAT is that VAT collecting agent. This special provision is regulated under Article 16A paragraph (1) of the VAT Law. The definition of a VAT collecting agent is set out in Article 1 number 27 of the VAT Law, which reads:

"A value added tax collecting agent is a treasurer of the government, an entity or a government agency appointed by the minister of finance to collect, remit and file tax payable by taxable persons on supplies of taxable goods and/or supplies of taxable services to the treasurer of the government, entity or government agency concerned."

In this case, your company is the seller, whilst the government agency is the buyer and simultaneously acts as the VAT collecting agent. Accordingly, the VAT payable on the furniture sales transactions is in principle collected by the government agency as the buyer. This mechanism is commonly known as the VAT collection obligation.

So why does the collection mechanism tend to result in an overpayment status on the seller's periodic VAT return?

In an ordinary transaction, a taxable person collects output VAT from the buyer, thereby, input VAT they have paid is offset by output VAT. By contrast, under the collection mechanism, the VAT on supplies performed to a VAT collecting agent is not collected by the seller taxable person, but is instead collected and remitted directly by the VAT collecting agent. The implication is that such VAT is not accounted for as output VAT self-collected by the seller taxable person.

At the same time, the seller taxable person continues to pay input VAT on their purchases. This situation means that the output VAT self-collected by the seller taxable person is insufficient to cover that input VAT. As a result, the periodic VAT return tends to show an overpayment status.

Nevertheless, in respect of that tax overpayment, a taxable person may carry it forward to the next taxable period or apply for a refund at the end of the accounting year. This mechanism is governed by Article 9 paragraph (4) and paragraph (4a) of the VAT Law.

However, it should be understood that a tax overpayment that has not yet been refunded is, in essence, the taxable person's working stated capital that is sitting in the state treasury. The longer those funds are held back, the greater the erosion of cash flow, which is the lifeblood of a company's operations.

In this regard, the VAT Law provides special treatment for taxable persons performing supplies to VAT collecting agents. Under Article 9 paragraph (4b) of the VAT Law, such a taxable person may apply for a refund in each taxable period, without having to wait until the end of the accounting year.

Further, provided the taxable person fulfils the criteria as a low-risk taxable person, the refund may be granted through a preliminary refund mechanism, commonly referred to as an accelerated refund. This facility is governed by Article 9 paragraph (4c) of the VAT Law.

What are the conditions for your company to be designated as a low-risk taxable person so as to obtain an accelerated refund?

To answer that question, we need to refer to Minister of Finance Regulation Number 28 of 2026 on the Procedures for Preliminary Tax Refund (MoF Reg. 28/2026). Pursuant to Article 13 paragraph (1) of MoF Reg. 28/2026, an accelerated VAT refund may be granted to a low-risk taxable person conducting certain activities.

Based on your earlier description, it is evident that your company is a furniture manufacturer with its own factory, and therefore falls within one of the 8 categories of taxable persons that may be designated as a low-risk taxable person. This is specified in Article 13 paragraph (2) subparagraph e of MoF Reg. 28/2026.

Further, your company also sells furniture to government agencies. This means your company supplies taxable goods to a VAT collecting agent. Such supplies fall within one of the specified activities as set out in Article 13 paragraph (3) subparagraph b of MoF Reg. 28/2026. It can therefore be seen that your company satisfies the initial criteria to be designated as a low-risk taxable person carrying out certain activities.

However, these initial criteria are only half the picture. Your company must still satisfy certain requirements before it can be designated as a low-risk taxable person. These requirements are detailed in Article 13 paragraph (4) of MoF Reg. 28/2026, and include the following:

• The taxable person has filed periodic VAT returns on time for the preceding 12 months;
• The taxable person is not currently subject to public preliminary audits and/or tax crime investigations; and
• The taxable person must never have been convicted of a tax crime pursuant to a court decision with permanent legal force within the preceding 5 years. See 'Entitled to Apply for Accelerated Refunds: Rules for Low-Risk Taxable Persons'

The next question is: what steps must be taken and what conditions must be fulfilled after being designated as a low-risk taxable person to obtain the accelerated refund facility?

Once designated as a low-risk taxable person, your company may apply for an accelerated refund by completing the preliminary tax refund column in the periodic VAT return. This procedure is set out in Article 16 paragraph (1) of MoF Reg. 28/2026.

In respect of that application, the Directorate General of Taxes (DGT) will first examine compliance with formal obligations. Pursuant to Article 16 paragraph (2) of MoF Reg. 28/2026, this examination essentially verifies that the three requirements for designation as a low-risk taxable person described above remain satisfied. In addition, the DGT also verifies that the designation as a low-risk taxable person remains valid and that the taxable period for which the accelerated refund is requested is not currently under audit. See 'DGT Tightens Formal Examination of Refunds by Low-Risk Taxable Persons'

If the formal obligations are satisfied, the DGT will proceed to examine the periodic VAT return. Pursuant to Article 16 paragraph (4) of MoF Reg. 28/2026, this examination covers compliance with the specified activities, the accuracy of tax computation and recording, input VAT credited, and input VAT paid directly. See 'Low-Risk Taxable Persons Applying for Accelerated Refunds: What the DGT Examines'

With regard to the examination of compliance with the specified activities, there is a clause stipulating that the value of the specified activities must amount to a minimum of 80% of the total value of supplies and exports in the taxable period for which the accelerated refund is requested. It should be noted that supplies exempt from VAT and supplies not subject to VAT are not taken into account in that total value. This threshold requirement is set out in Article 16 paragraph (5) of MoF Reg. 28/2026. See 'Stricter Rule: 80% Threshold for Refunds for Low-Risk Taxable Persons'

In the context of your company, this provision means that the value of furniture sales to government agencies in a given taxable period must amount to at least 80% of total sales in the same taxable period. To understand the calculation clearly, see 'How to Calculate the 80% Requirement for Accelerated Refunds for Low-Risk Taxable Persons.'

Based on the results of that examination, the DGT will issue a preliminary tax refunds decision letter (surat keputusan pengembalian pendahuluan kelebihan pajak/SKPPKP in Indonesian) where all conditions are satisfied and a tax overpayment exists. Conversely, if the conditions are not satisfied, the SKPPKP will not be issued and the taxable person will be notified accordingly. This is explained in Article 17 paragraph (1) of MoF Reg. 28/2026.

The SKPPKP or notification must be issued within a maximum of 1 month from the date the application is received, as stipulated under Article 17 paragraph (2) of MoF Reg. 28/2026. If that period elapses without the issuance of either an SKPPKP or a notification, the application shall be deemed granted. This is affirmed in Article 17 paragraph (3) of MoF Reg. 28/2026.

That concludes our answer. We hope it is helpful.

As information, the Tax Consultation column is published every week to answer selected questions from loyal DDTCNews readers. Those wishing to submit a question may do so by sending an e-mail to [email protected].