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VAT hike sparks criminal risks for entrepreneurs
The recent VAT hike has created a dual rate system that presents liabilities to both entrepreneurs and consumers, pointing to a need for accountability on the part of the public in understanding regulations as well as on the part of government in terms of outreach to ensure effective implementation and to avoid penalizing potential errors resulting from regulatory missteps.
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High-end bags and accessories are displayed at a luxury outlet in this undated stock photo. (Shutterstock/-)
T
he government, through Finance Minister Regulation No. 131/2024, has imposed a value-added tax (VAT) rate of 12 percent, albeit limited to luxury goods and services.
The policy introduces a new dynamic to Indonesia’s taxation landscape. According to the preamble to the regulation, it aims to promote fairness across society.
However, this policy also serves as a test of vigilance and compliance for taxable entrepreneurs (PKPs). Misunderstanding or misapplying the regulation could not only harm consumers but also expose PKPs to serious legal consequences. Why is this the case?
Specifically, the 12 percent VAT rate applies only to luxury goods and services that were previously subject to the luxury goods sales tax (PPnBM). Non-luxury goods and services remain subject to the standard 11 percent VAT.
This new regulation creates a dual rate system, requiring businesses to be extra meticulous in tax classification and collection. In practice however, many PKPs either misinterpret the rule or deliberately apply the 12 percent rate uniformly to all goods and services. As a result, consumers are overcharged by 1 percent.
The real issue is that this 1 percent surcharge doesn’t go to the national treasury. Instead, it becomes an unintended windfall for businesses, unless a refund mechanism is put in place.
As of Jan. 3, 2025, the refund mechanism for such surcharges is governed by the recently issued Taxation Director General Regulation No. 1/2025. This regulation stipulates that PKPs must refund any excess VAT collection resulting from incorrect tax bases to the party that paid it. The mechanism requires the PKP to revise or replace the tax invoice or equivalent document according to the consumer’s request.
