VAT of 11% Starting to Apply Officially

Date of Post

April 1, 2022

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The VAT provisions in the Law on Harmonization of Tax Regulations (“HPP Law”) officially took effect on 1st April 2022, including the increase of the VAT rate to 11%. The provisions are contained in Article 7 of Law No. 7 of 2021.

Director of Counselling, Services, and Public Relations of the Directorate General of Taxes at the Ministry of Finance (“MoF”) Neilmaldrin Noor addressed that the increment of VAT rate is part of the overall tax reform and that the various policies were in place to balance out the change including:

  • decrease in the rate of Individual Income Tax (“PPh”) on income up to Rp. 60 million from 15% to 5%.
  • tax exemptions for Micro, Small, and Medium Entrepreneurs with a turnover of up to Rp. 500 million.
  • final VAT facilities with the smaller amount, namely 1%, 2%, or 3%, and accelerated VAT refund services of up to Rp. 5 billion are still available.

“In addition to tax support, the government through the state revenue and expenditure budget (APBN) will also continue and will strengthen its support in the form of social protection to maintain people’s purchasing power and national economic conditions,” mentioned in an official statement.

Quoting the official website of the MoF, the following objects of goods and services are subject to VAT:

  • Delivery of the Taxable Goods (Barang Kena Pajak/“BKP”) within the customs area by the entrepreneur;
  • Import of BKP and/or utilization of Taxable Services (Jasa Kena Pajak /“JKP”) or intangible BKP from outside the Customs Area within the Customs Area;
  • Export BKP and/or JKP;
  • Self-construction activities that are not carried out in business activities or work by individuals or entities;
  • Delivery of assets by VAT-able which according to the original purpose of the assets are not for sale, as long as the VAT paid at the time of acquisition can be credited.

BKP under the VAT Law is considered subject to a “negative list”, meaning that in principal, all goods are BKP unless specified as goods that are not subject to VAT.

Read More:  New Customs Tariff Regulation

Certain goods and services as listed below are still provided with VAT-free facilities:

  • staple goods such as rice, grain, corn, sago, soybeans, salt, meat, eggs, milk, fruits, vegetables, and consumable sugar;
  • health services, education services, social services, insurance services, financial services, public transportation services, and labor services;
  • vaccines, textbooks, and scriptures;
  • clean water (including connection/installation fees and fixed load costs);
  • electricity (except households with power >6600 VA);
  • simple flats, rusunami, RS, and RSS;
  • construction services for houses of worship and construction services for national disasters;
  • machinery, marine fishery products, livestock, seeds/seeds, animal feed, fish feed, feed ingredients, raw hides and skins, silver handicraft raw materials;
  • petroleum, natural gas (gas through pipelines, LNG, and CNG), and geothermal;
  • gold bullion and granulated gold;
  • weapons/defense equipment and aerial photography equipment.

Certain goods and services as listed below are still not subject to VAT:

  • goods that are objects of local taxes: food and drinks served in hotels, restaurants, restaurants, food stalls, and the like;
  • services that are objects of local taxes: parking services, arts and entertainment services, hospitality services, and catering or catering services;
  • money, gold bullion for the benefit of the country’s foreign exchange reserves, and securities;
  • religious services and services provided by the government.

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