BERITA TERKINI
VALUE Added Tax (VAT) is a consumption tax on goods and services within the customs territory imposed at stages in each production and distribution line. VAT payable is calculated by multiplying the applicable VAT rate with the VAT base (Dasar Pengenaan Pajak/DPP in Indonesian).
This implies that there are 2 important components to understand in determining the amount of VAT payable on a transaction, namely the VAT rate and VAT base. VAT base is a crucial component on account of its significant role in determining the amount of VAT payable.
Generally, VAT base is defined as the price charged by the party supplying goods and/or services for the supplies delivered. In other words, the VAT base is the price of the supplied goods and/or services (Darussalam, Septriadi and Dhora, 2018).
In contrast, Schenk and Oldman (2007) define VAT base as the amount of money and fair market value as the consideration received for a transaction. In general, each country has special regulations applied to determine the VAT base for certain transactions.
For example, in European Union countries, the VAT base is stipulated under the VAT Directive. To cover transactions with more complex characteristics, the VAT Directive has enacted a set of regulations that define and elaborate the VAT base.
The regulations are differentiated based on 3 types of transactions, namely VAT base for supplies of goods or services, VAT base for imports of goods and VAT base for supplies between fellow EU countries (Darussalam, Septriadi and Dhora, 2018).
Tax Bases under Indonesian Provisions
In the context of tax provisions in Indonesia, VAT bases are stipulated under Article 8A paragraph (1) of the VAT Law as last amended by the HPP Law. Pursuant to this article, the VAT bases in Indonesia include the selling price, consideration, import value, export value or alternative tax base used as the basis for calculating tax payable.
Each type of VAT base has a different definition as well as designation. Therefore, it is crucial to take into account the definition of each type of VAT base formulated under the VAT Law as last amended by the HPP Law. Below is the explanation.
Pursuant to Article 1 number 18 of the VAT Law as last amended by the HPP Law, the selling price is the value in the form of money, including all costs requested or should be requested by the seller due to a supply of taxable goods, excluding VAT collected pursuant to the VAT Law and the discount included in the tax invoice.
Pursuant to Article 1 number 19 of the VAT Law as last amended by the HPP Law, consideration refers to the value in the form of money, including all costs requested or should be requested by the entrepreneur because of a supply of taxable services, exports of taxable services or exports of intangible taxable goods, but excluding VAT collected pursuant to the VAT Law and the discount included in the tax invoice or the value in the form of money paid or should be paid by the service recipient due to the utilisation of taxable services and/or by the beneficiary of intangible taxable goods due to the utilisation of intangible taxable goods from outside the customs territory within the customs territory.
Pursuant to Article 1 number 20 of the VAT Law as last amended by the HPP Law, import value refers to the value in the form of money constituting the basis for calculating import duty plus levies pursuant to the provisions under statutory laws and regulations stipulating customs and excise for imports of taxable goods, excluding VAT and STLGs collected pursuant to the VAT Law.
Pursuant to Article 1 number 26 of the VAT Law as last amended by the HPP Law, export value refers to the value in the form of money, including all costs requested or should be requested by the exporter. The export value is listed on an export document referred to as the export declaration (Pemberitahuan Ekspor Barang/PEB in Indonesian).
Referring to Article 8 paragraph (1) of the VAT Law, it is known that in addition to the selling price, consideration, import value and export value, there are other VAT bases referred to as the alternative tax bases. The alternative tax base is an intriguing terminology to review. As such, what does the alternative tax base refer to?
The Emergence of Alternative Tax Bases in Indonesia
Within a period of 41 years since its ratification on 31 December 1983, Law No. 8 of 1983 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods (VAT Law No.8/1993) has been subject to five amendments.
In retrospect, the alternative tax base terminology first appeared in VAT Law No.11/1994 which constitutes the first amendment to the VAT Law. Albeit not expressly defining the alternative tax base, VAT Law No.11/1994 adds the alternative tax base as one of the types of tax bases.
The addition of the alternative tax base as one of the types of tax bases is evident in the change in the definition of tax bases pursuant to VAT Law No.8/1993 and VAT Law No.11/1994. To clarify, the following is a comparison of the definitions of tax bases under Article 1 letter n of VAT Law No.8/1983 and Article 1 letter n of VAT Law No.11/1994.
Based on the comparison, VAT Law No.8/1993 only mentions 3 types of tax bases, namely the selling price, consideration and import value. In contrast, VAT Law No.11/1994 mentions 5 types of tax bases, namely the selling price, consideration, import value, export value and alternative tax base.
Referring to the Elucidation of Article 1 letter n of VAT Law No.11/1994, one of the underlying reasons for the enactment of the alternative tax base as the tax base is where the selling price, consideration, import value or export value is difficult to determine. A fragment of the Elucidation of Article 1 letter n of VAT Law No.11/1994 reads as follows.
“In the event that the application of Selling Price or Consideration or Import Value or Export Value will result in unfairness or because the Selling Price or Consideration is difficult to determine, the Minister of Finance may determine Alternative Amount as the Tax base."
Alternative Tax Bases under VAT Law No.18/2000
In its development, VAT Law No.18/2000 amended the definition of tax base and added clarification related to the use of the alternative tax bases. Pursuant to Article 1 number 17 of VAT Law No.18/2000, the definition of tax base has been amended to the following.
"The tax base is the amount of the Selling Price, Consideration, Import Value, Export Value or Alternative Amount stipulated by the Minister of Finance Decree used as the basis for calculating tax payable."
Based on this definition, the alternative tax base used as the tax base in calculating VAT payable is stipulated by a minister of finance decree. Based on the elucidation of Article 9 paragraph (1) of VAT Law No.18/2000, the VAT base may be stipulated by a Minister of Finance decree only to ensure a sense of fairness in the following cases:
Alternative Tax Bases under VAT Law No.42/2009
Nearly nine years later, the government promulgated VAT Law No.42/2009 which constitutes the third amendment to the VAT Law. Through VAT Law No.42/2009, the government, inter alia, added Article 8A.
Article 8A paragraph (1) of the VAT Law No.42/2009 reaffirms that VAT payable is calculated by multiplying the VAT rate by the tax base which includes the selling price, consideration, import value, export value or alternative tax base.
Pursuant to Article 8A paragraph (2) of the VAT Law No.42/2009, the provisions on alternative tax bases are stipulated by or pursuant to a Minister of Finance Regulation (MoF Reg.). Referring to the elucidation of Article 8A paragraph (2) of VAT Law No.42/2009, tax bases in the form of alternative tax bases are stipulated by or pursuant to MoF Reg. only to ensure a sense of fairness in the event that:
The emergence of Article 8A clarifies the existence of alternative tax bases and constitutes the basis for the provisions on alternative tax bases to date.
Alternative Tax bases under VAT Law as last amended by the HPP Law
The HPP Law entails diverse amendments to tax provisions, including the alternative tax bases. The amendments include the deletion of Article 8A paragraph (2) which formerly delegated the regulation of alternative tax bases as tax bases under an MoF Reg.
The provision that delegated the regulation of alternative tax bases as tax bases under an MoF Reg. is transferred to Article 16G letter a. Similarly, the Elucidation of Article 16G letter a states that the alternative tax base is applied if other types of tax bases are difficult to determine.
"The tax base in the form of an alternative tax base is applied to ensure legal certainty in the event that the Selling Price, Consideration Value, Import Value and Export Value as the Tax base are difficult to determine."
Thus, the alternative tax base is the value in the form of money stipulated as the VAT base. The alternative tax bases are applied in the event that the selling price, consideration value, import value and export value as the tax base is difficult to determine. This implies that the alternative tax base does not apply to any transaction.
There are various MoF Reg. as delegates from Article 16G letter a of the VAT Law as last amended by the HPP Law which further regulates alternative tax base as a VAT base. Here's a summary of the MoF Reg. as well as the types of supplies that use the alternative tax base.
Before the HPP Law and its derivative regulations came into force, package delivery services, certain travel agency services and freight forwarding services had applied the alternative tax base. However, pursuant to MoF Reg. 71/2022, VAT on all three services is now calculated using a certain amount. Check out ‘Different Alternative Tax Bases and Certain Amounts in the Imposition of VAT'.
In addition, the HPP Law adds Article 8A paragraph (3) which stipulates input VAT on: (i) the acquisition of Taxable goods and/or taxable services; (ii) imports of BKP; and (iii) the use of intangible taxable goods and/or the use of JKP from outside the customs territory within the customs territory, which uses alternative tax base can be credited.
Alternative Tax Bases in the International Perspective
The use of tax bases in the form of alternative tax bases in the case of calculating the burden of VAT payable is also frequently found in numerous countries. On another note, in general, each country uses tax base elements that are generally applicable and have been stipulated by default, in the context of imports, domestic supplies and so forth.
The use of alternative tax bases is generally aimed at two matters. First, reducing the effective VAT rate, namely the VAT burden actually paid regardless of the applicable statutory rate (Tait, 1988). The alternative tax base constitutes an alternative, instead of using a relief scheme with a 0% rate and exemption facility. For example, Sweden applied a special formula that reduced the tax base value by 50% for VAT in the housing sector.
However, over time, the alternative tax base scheme to reduce the effective VAT rate is increasingly rare. This is allegedly caused by the fact that more and more countries have now implemented the multi-rate scheme (Darussalam, 2021), thereby, the goal of reducing the effective VAT rate may be implemented through a reduced rate.
Second, addressing the issue of the difficulty in implementing the generally applicable VAT base in certain transactions or sectors (Tait, 1988). Naturally, challenges in implementing the generally applicable tax base are imminent. For example, in the case of the inappropriateness of using the invoice value as the tax base due to the involvement of various services and goods in a supply.
Another example is where a supply of is conducted free of charge or between affiliates. This difficulty seems to result in the use of specific/certain tax base in various countries.
Based on the IBFD Country Profile as of 2024, the use of the alternative tax base may be found in several countries. Turkey implements the alternative tax base in the form of the market price in the event of free of charge and gifts. Norway implements the alternative tax base by reducing the tax base for second-hand products, antiques, artworks and so forth.
Italy uses the market price for self-supply transactions between affiliates. South Africa applies the alternative tax base in certain transaction schemes, for instance, sharia economic activities, transactions between affiliates, construction agreements, supplies of goods in rental schemes and so forth.
On another note, not every country has an alternative tax base scheme. For example, Uruguay, South Korea, Nigeria and so forth. However, what can be learned – and indeed in line with the law in Indonesia – is that the use of alternative tax bases apply specifically to certain goods and services instead of the majority of goods and services.
With the issuance of MoF Reg. 131/2024, the use of the alternative tax base scheme has, in fact, been expanded, even for the majority of taxable goods (Barang Kena Pajak/BKP in Indonesian) and taxable services (Jasa Kena Pajak/JKP in Indonesia). The use of the statutory tax rate directly multiplied by the selling price or import value as the DPP only applies to taxable luxury goods in the form of motor vehicles and other than motor vehicles that are subject to Sales Tax on Luxury Goods (STLGs). (kaw)
