What Is Certain Goods and Services Tax?

The dynamics of fiscal decentralisation encourage the government to change and adjust the policies. This measure needs to be undertaken to optimise the objectives of fiscal decentralisation that has been running for 2 decades.

The adjustments of fiscal decentralisation policies are reflected in the ratification of Law No.1/2022 concerning Financial Relations between the Central Government and Local Governments.

In effect as of 5 January 2022, the legal basis revokes and replaces two laws formerly the basis for fiscal decentralisation and local tax collection, namely Law No. 33/2004 and Law No. 28/2009.

One of the breakthroughs included in the Financial Relations between the Central Government and Local Governments Law is the regulation of Certain Goods and Services Tax. As is known, Certain Goods and Services Tax is a new term that has not been regulated under former laws. As such, what are Certain Goods and Services Tax?

Definition

Certain Goods and Services Tax are a new tax nomenclature regulated in the Financial Relations between the Central Government and Local Governments Law. Basically, Certain Goods and Services Tax are an integration of 5 types of consumption-based local taxes under the Local Taxes and Local Charges Law, namely hotel tax, restaurant tax, entertainment tax, parking tax and street lighting tax.

Pursuant to Article 1 number 42 of the Financial Relations between the Central Government and Local Governments Law, Certain Goods and Services Tax are taxes paid by end consumers on the consumption of certain goods and/or services. Certain goods and/or services constituting objects of Certain Goods and Services Tax include:

First, food and/or beverages. Sales and/or supplies of food and/or beverages include food and/or beverages provided by:

1. restaurants that at least provide the serving of food and/or beverages services in the form of tables, chairs and/or utensils for eating and drinking;
2. catering service providers that conduct the following:

• the process of providing raw materials and work-in-process, manufacture, storage and serving based on orders;
• serving on the premises desired by the customer and different from the location where the manufacturing and storage processes are carried out; and
• serving is carried out with or without utensils and staff.

Second, electricity. The consumption of electricity constituting an object of Certain Goods and Services Tax is the use of electricity by end users.

Third, hotel services. The said hotel services include the provision of accommodation services and supporting facilities as well as the rental of meeting rooms by hotel service providers, such as: hotels; villas; tourist lodges; motels; budget hotels; tourist hostels; and lodgings; inns/guest houses/bungalows/resorts/cottages; private residences functioned as hotels; and glamping.

Fourth, parking services. The said parking services include the provision or operation of parking spaces and/or valet parking services.

Fifth, arts and entertainment services. The said arts and entertainment services include films or other forms of audio-visual spectacle shown live at certain locations; arts, music, dance and/or fashion shows; beauty pageants; and bodybuilding competitions.

There are also recreational water rides, ecological rides, educational rides, cultural rides, snow rides, game rides, fishing, agro-tourism and zoos; massage and reflexology parlours; and discotheques, karaoke, nightclubs, bars and saunas or spas.

When juxtaposed with the previous provisions, it can be seen that the Certain Goods and Services Tax objects do not only combine the objects of the five types of former consumption-based local taxes. The Financial Relations between the Central Government and Local Governments Law also expands Certain Goods and Services Tax objects, among others, valet parking services.

However, not all of these objects will be subject to Certain Goods and Services Tax. The Financial Relations between the Central Government and Local Governments Law stipulates objects excluded from the imposition of Certain Goods and Services Tax, among others, restaurants with business turnover not exceeding certain thresholds set forth in Local Regulations.

The collection of Certain Goods and Services Tax is the authority of the regency/municipal government. The tax subjects, taxpayers, tax base and the calculation method of Certain Goods and Services Tax are the same as the regulation in the five types of consumption-based taxes formerly regulated under the Local Taxes and Local Charges Law.

Certain Goods and Services Tax rate is set uniformly at a maximum of 10%. However, the local governments are given the flexibility to set a higher tax rate on entertainment services at discotheques, karaoke, nightclubs, bars and saunas or spas, i.e. as low as 40% and as high as 75%.

In addition, 2 special rates apply to electricity. First, the consumption of electricity from other sources by industries, oil and natural gas mining, is set at a maximum of 3%. Second, the consumption of self-generated electricity is set at a maximum of 1.5%.

Conclusion

In essence, Certain Goods and Services Tax are taxes paid by end consumers on the consumption of certain goods and/or services. Certain goods and services constituting objects of Certain Goods and Services Tax include food and/or beverages; electricity; hotel services; parking services; and arts and entertainment services.

Despite being a new nomenclature, Certain Goods and Services Tax are actually an integration of 5 types of consumption-based local taxes under the Local Taxes and Local Charges Law, namely hotel tax, restaurant tax, entertainment tax, parking tax and street lighting tax

Referring to the Academic Manuscript (NA) of the Financial Relations between the Central Government and Local Governments Law, the distinction of 5 types of taxes that have the same characteristics, to date, has caused an inconvenient administrative burden for taxpayers conducting hotel, restaurant, entertainment and parking businesses and use electricity at the same time.

This is because in the implementation of the Local Taxes and Local Charges Law, if a taxpayer conducts these five activities, the taxpayer is required to pay 5 types of local taxes and file 5 types of Local Tax Returns.

Therefore, the five types of taxes with the same characteristics are integrated into one type of tax, namely Certain Goods and Services Tax. The integration is intended to simplify taxpayer administration and facilitate integrated tax collection monitoring by local governments. (kaw)