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VAT on service export ineffective
Reducing tax rates seems to be an increasingly popular policy now.
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Finance Minister Sri Mulyani Indrawati speaks with reporters on Thursday following a meeting with President Joko "Jokowi" Widodo and 40 major exporters at Bogor Palace, West Java. (JP/Anton Hermansyah)
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educing tax rates seems to be an increasingly popular policy now. After slashing income tax rates for small and medium enterprises (SME) and income tax on repatriated export proceeds, which are put in domestic banks, the government is currently formulating a policy that will reduce the value added tax (VAT) rate to 0 percent for service exports.
Following Finance Ministerial Regulation (PMK) No. 70/PMK.03/2010, the government has so far subjected only three items of export services to 0 percent VAT, including repair and maintenance services and construction services.
Six additional items of export services that will be subjected to 0 VAT rate include technology and information services, research and development services, transportation equipment rental, transportation management services, professional and trade services.
The strategy is one of the government’s responses to the current account deficit, which has been generated mainly by the services sector deficit. Therefore, the elimination of the VAT rate is intended to encourage the value of service exports in order to reduce the service account deficit.
