Article 10 of the regulation emphasizes that the transfer of rights to taxable goods can also occur because of an agreement. In this context, the definition of transfer of rights over taxable goods due to an agreement is the delivery of collateral by the creditor to the buyer. Still the same article stipulates that collateral is a category of taxable goods that are taken over by creditors based on mortgage rights over land and objects related to land, fiduciary guarantees, mortgages, pledges or other similar charges.

So if the elements in the article are withdrawn, first, there is the delivery of collateral belonging to the borrower to the creditor. Second, the collateral is bound based on agreements including mortgages, fiduciary guarantees, mortgages, pledges and the like. Third, there is a default from the borrower so that the creditor takes over the collateral, commonly known as AYDA, or foreclosed collateral. Fourth, the foreclosed collateral is purchased by a third party or purchased by a creditor, either at auction or privately.

When viewed from these four elements, the legal event for which VAT is payable is the fourth event, namely the delivery of collateral to a third party or by a creditor to be owned. Whereas in the first element, there is no VAT payable yet, because in accordance with Article 1A of the VAT law, the delivery of taxable goods from the owner as collateral for debt, is excluded as a delivery of VAT payable.

Then, the question is whether the government's imposition of VAT on foreclosed assets, or commonly known as AYDA, is on target. Bearing in mind that before the regulation, which was a derivative of the HPP Law, was issued, the government and the legislature through the law had changed the substance of the imposition of VAT on financial services, which was originally not a VAT object, to become a VAT object that obtained exemptions.

First, considering the substance that the nature of VAT is a consumption tax on goods and services, the burden of imposing VAT ultimately lies with and is borne by consumers. So in simple terms, we can ensure that the collection of VAT on the transfer of collateral will be a burden on the buyer who has been executed by the bank. The buyer can be a third party or the bank itself when purchasing the collateral.

The policy regarding the imposition of VAT on the transfer of rights to collateral to buyers or third parties is appropriate, on the grounds that this policy has provided an equal level playing field between property buyers through developers and property buyers either through auctions or outside auctions.

Gustav Radbruch, a legal expert, explained that the purpose of the law was to uphold justice, provide legal certainty and create benefits for society. Although these three legal objectives sometimes contravene each other, for example, if justice is overly prioritized, it can reduce legal certainty and vice versa, a good legal objective can actually provide a balance between the three legal objectives.

The new policy regarding the imposition of VAT on collateral executed and transferred by creditors, to the best of my knowledge, is motivated by the existence of a legal vacuum regarding the tax treatment of these legal events, so that tax disputes often occur regarding this matter. Thus, it is necessary to regulate the imposition

Of VAT on collateral in order, at least, to provide legal certainty and provide justice, namely in the form of equal treatment (level playing field) between buyers who buy property through developers and buyers who buy property by participating in auctions or under the hands of ex-collateral owned by bank customers or other similar financial institutions that have been taken over.

Based on the description above, without intending to overly simplify, a conclusion can be drawn that the law, which has been in effect since early December 2022, provides a new landscape of taxation aspects related to collateral for banks and other financial institutions. This arrangement is expected to provide legal certainty over matters that were not explicitly regulated before.

Finally, the provision provides space for the finance minister to set detailed procedures and limitations regarding the regulation. In this section, it is proposed that later in the detailed regulations it is necessary to give further confirmation whether the provisions in the policy apply only to collateral bound by mortgage, fiduciary, mortgage, mortgage or other similar charges, so whether for collateral that is not bound by the agreement as mentioned above also applies the same provisions.

For example, if a rural bank (BPR) or financial institution provides credit to a customer, with collateral in the form of a land certificate, without being bound by the agreement as mentioned above, then the customer defaults, the bank/financial institution cannot execute the collateral, even though the practice is using the power of attorney to sell and so on, but of course the legal events will be different from the matters regulated in the regulation.

For this reason, examples/case simulations must be included in the Finance Ministry regulations, which will be drafted in order to provide more explanation and of course provide legal certainty in its implementation in the field.

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The writer is founder of TaxVloganza and an official at the Directorate General for Taxes. The views in this article are personal.