As a result of being subject to Final Income Tax on their revenue, the construction service business is one of the business activities that receive different tax treatment from other general industries. When this occurs, the tax reported on their Annual Corporate Income Tax Return is typically zero if they are only engaged in a construction-related business, or it is typically underpaid or overpaid if they are also engaged in other types of business.
Based on Article 1 Number 1 of Law Number 02 of 2017 about Construction Services, “Construction Services are construction consulting services and/or construction works.”
Not a few construction service businesses are needed to build state infrastructure or even build signaling and telecommunications technology, which are still under the auspices of the construction service business itself. In general, these needs come from state agencies, State-Owned Enterprises (“BUMN“)/Local-Owned Enterprises (“BUMD“) as well as private parties. If this need arises from state agencies and BUMN/BUMD, which are Compulsory Collections (“WAPU“), it can lead to an overpaid position on the VAT Return of construction service business actors. In the end, construction service business actors can make VAT refunds, which causes a VAT audit on the VAT refund application. This situation often happens, especially for Construction Service Companies that have transactions with end customers.
Based on Article 4 Paragraph 1 point c of the VAT Law, “Value-Added Tax is imposed on the delivery of Taxable Services within the Customs Area by entrepreneurs”, which in this point includes construction services.
Construction service business actors who run their businesses to meet the needs of parties who can collect VAT themselves (Treasurers and/or WAPU) need to pay more attention to the formal and material regulations for VAT collections, both when collecting and when it is collected. This is to mitigate risks when requesting VAT refunds. In this article, we will discuss the application of formal regulations regarding the procedure for filling in tax invoice information based on PER-03/PJ/2022.
The method of payment for construction service businesses is generally carried out in stages. Starting from the down payment, payment of terms, and retention, which are usually regulated in a Purchase Order (“PO”) and/or contract. In general application, the value of the down payment will be amortized as a deduction in the payment of each term by the PO or contract, and the actual payment will be based on progress determined in the contract by submitting the Progress Report along with other documents to charge payment. Usually, the value of the down payment as a deduction for the payment of the term appears on the invoice but does not appear on the tax invoice. This can pose a risk of tax invoices that are considered incomplete based on PER-03/PJ/2022.
Article 13 paragraph (5) of the Law on Value-Added Tax Number 42 of 2009 (“VAT Law”) states that:
“In the Tax Invoice, information regarding the delivery of Taxable Goods and/or the delivery of Taxable Services must be stated, which at least contains:
- name, address, and Taxpayer Identification Number of the person who delivers Taxable Goods or Taxable Services;
- name, address, and Taxpayer Identification Number of the buyer of Taxable Goods or the recipient of Taxable Services;
- type of goods or services, amount of Selling or Replacement Prices, and discounted prices;
- Value-Added Tax collected;
- Sales Tax on Luxury Goods collected;
- code, serial number, and date of creation of the Tax Invoice; and
- name and signature entitled to sign the Tax Invoice.”
If the points in letters a to g have been filled in completely and correctly, sometimes the Taxpayer forgets that there is still PER-03/PJ/2022, which regulates Shape, Size, Procedure for Filling Information, Procedure for Notification in the Context of Making, Procedure for Correction or Replacement, and Tax Invoice Cancellation Procedures. As explained in the paragraph above, in general, there are still many construction service business actors who forget to check the completeness of input tax invoices and output tax invoices by filling in information on advance payments and terms in the tax invoice.
This is regulated in Article 6 paragraph (7) PER-03/PJ/2022, namely: “The procedure for filling in information on tax invoices is as stipulated in Appendix II, which is an integral part of this Regulation of the Director General of Taxes”. Next, let’s look at Appendix II of the PER. In Appendix II numbers 3 letters b and c are explained as follows:
“b. Name of Taxable Goods/Taxable Services.
Filled with the type of Taxable Goods and/or Taxable Services submitted that describe the actual or real condition.
– In case of receipt of Down Payment or Terms or installments, column Name of Taxable Goods or Taxable Services is added with information, for example, Down Payment, or Terms or Installments, for the purchase of Taxable Goods and/or the acquisition of Taxable Services.
– In case of etc…….
c. Selling Price/Replacement/Down Payment/Term.
1) Filled with the selling price or replacement of the Taxable Goods or Taxable Services delivered before deducting the Down Payment or Termination.
2) If an Advance Payment or Termination is received, then the basis for calculating Value-Added Tax is the amount of the Advance Payment or Termination concerned.”
Then in number 6, it is explained that:
“The down payment that has been received is filled with the value of the down payment that has been received from the delivery of Taxable Goods and/or Taxable Services”
Based on the explanation above, it can be concluded that to fulfill invoices that are complete and correct, it is necessary for construction service businesses to pay attention again to the filling part of the down payment, terms, and retention information in the section “Name of Taxable Goods and/or Taxable Services” and that the amount of the down payment be a deduction from the invoice. This can mitigate the risk that the Tax Office considers invoices to be incomplete. It should be remembered that these fillings need to be considered when making output tax invoices to be given to income providers as well as input tax invoices received from vendors/subcontractors as income recipients.
If the output tax invoice is deemed incomplete, the business actor may accept the risk of an administrative sanction of 1% of the output VAT Basis. If the input tax invoice is considered incomplete, the business actor can accept the risk of not being able to credit the VAT input and an increase in fines of 75% if there is VAT compensation from the previous tax period to the tax period for which the refund was made. Therefore, even though the filling does not cause material losses to the state, it can become a risk in the future because it does not meet the formal requirements, which is very difficult for the Tax Office to cancel the correction.