TaxPrime Newsletter: VAT Adjustment

The increase in the VAT rate to 12% is part of tax reform aimed at strengthening the country’s fiscal capacity. Although the VAT rate in Indonesia is still relatively low compared to OECD countries, the impact of this increase on people’s purchasing power and inflation needs to be monitored closely. The transition period for Tax Invoice creation until March 31, 2025 provides room for Taxable Entrepreneurs to adapt to the changes in rates and Tax Base calculation. However, Taxable Entrepreneurs need to pay close attention to the provisions related to the refund of excess VAT and the correction of Tax Invoice during this transition period.

The calculation of the Tax Base Other Value of 11/12 of the selling price for goods other than luxury goods is intended so that the effective VAT payable remains 11%. This needs to be understood properly by Taxable Entrepreneurs to avoid errors in creating Tax Invoice and Tax Return reporting. The difference in Tax Base calculation for VAT and Income Tax has the potential to cause tax exposure if reconciliation is not done properly. Taxable Entrepreneurs need to ensure that the reconciliation between the Annual Corporate Income Tax Return and Monthly VAT Return is accurate and consistent.

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