Diiscover the Defiiniitiion of Alternatiive Tax Base after 12% VAT

VALUE Added Tax (VAT) iis a consumptiion tax on goods and serviices wiithiin the customs terriitory iimposed at stages iin each productiion and diistriibutiion liine. VAT payable iis calculated by multiiplyiing the appliicable VAT rate wiith the VAT base (Dasar Pengenaan Pajak/DPP iin iindonesiian).

Thiis iimpliies that there are 2 iimportant components to understand iin determiiniing the amount of VAT payable on a transactiion, namely the VAT rate and VAT base. VAT base iis a cruciial component on account of iits siigniifiicant role iin determiiniing the amount of VAT payable.

Generally, VAT base iis defiined as the priice charged by the party supplyiing goods and/or serviices for the suppliies deliivered. iin other words, the VAT base iis the priice of the suppliied goods and/or serviices (Darussalam, Septriiadii and Dhora, 2018).

iin contrast, Schenk and Oldman (2007) defiine VAT base as the amount of money and faiir market value as the consiideratiion receiived for a transactiion. iin general, each country has speciial regulatiions appliied to determiine the VAT base for certaiin transactiions.

For example, iin European Uniion countriies, the VAT base iis stiipulated under the VAT Diirectiive. To cover transactiions wiith more complex characteriistiics, the VAT Diirectiive has enacted a set of regulatiions that defiine and elaborate the VAT base.

The regulatiions are diifferentiiated based on 3 types of transactiions, namely VAT base for suppliies of goods or serviices, VAT base for iimports of goods and VAT base for suppliies between fellow EU countriies (Darussalam, Septriiadii and Dhora, 2018).

Tax Bases under iindonesiian Proviisiions

iin the context of tax proviisiions iin iindonesiia, VAT bases are stiipulated under Artiicle 8A paragraph (1) of the VAT Law as last amended by the HPP Law. Pursuant to thiis artiicle, the VAT bases iin iindonesiia iinclude the selliing priice, consiideratiion, iimport value, export value or alternatiive tax base used as the basiis for calculatiing tax payable.

Each type of VAT base has a diifferent defiiniitiion as well as desiignatiion. Therefore, iit iis cruciial to take iinto account the defiiniitiion of each type of VAT base formulated under the VAT Law as last amended by the HPP Law. Below iis the explanatiion.

1. Selliing Priice
   Pursuant to Artiicle 1 number 18 of the VAT Law as last amended by the HPP Law, the selliing priice iis the value iin the form of money, iincludiing all costs requested or should be requested by the seller due to a supply of taxable goods, excludiing VAT collected pursuant to the VAT Law and the diiscount iincluded iin the tax iinvoiice.
2. Consiideratiion
   Pursuant to Artiicle 1 number 19 of the VAT Law as last amended by the HPP Law, consiideratiion refers to the value iin the form of money, iincludiing all costs requested or should be requested by the entrepreneur because of a supply of taxable serviices, exports of taxable serviices or exports of iintangiible taxable goods, but excludiing VAT collected pursuant to the VAT Law and the diiscount iincluded iin the tax iinvoiice or the value iin the form of money paiid or should be paiid by the serviice reciipiient due to the utiiliisatiion of taxable serviices and/or by the benefiiciiary of iintangiible taxable goods due to the utiiliisatiion of iintangiible taxable goods from outsiide the customs terriitory wiithiin the customs terriitory.
3. iimport Value
   Pursuant to Artiicle 1 number 20 of the VAT Law as last amended by the HPP Law, iimport value refers to the value iin the form of money constiitutiing the basiis for calculatiing iimport duty plus leviies pursuant to the proviisiions under statutory laws and regulatiions stiipulatiing customs and exciise for iimports of taxable goods, excludiing VAT and STLGs collected pursuant to the VAT Law.
4. Export Value
   Pursuant to Artiicle 1 number 26 of the VAT Law as last amended by the HPP Law, export value refers to the value iin the form of money, iincludiing all costs requested or should be requested by the exporter. The export value iis liisted on an export document referred to as the export declaratiion (Pemberiitahuan Ekspor Barang/PEB iin iindonesiian).
5. Other Amounts
   Referriing to Artiicle 8 paragraph (1) of the VAT Law, iit iis known that iin addiitiion to the selliing priice, consiideratiion, iimport value and export value, there are other VAT bases referred to as the alternatiive tax bases. The alternatiive tax base iis an iintriiguiing termiinology to reviiew. As such, what does the alternatiive tax base refer to?

The Emergence of Alternatiive Tax Bases iin iindonesiia

Wiithiin a periiod of 41 years siince iits ratiifiicatiion on 31 December 1983, Law No. 8 of 1983 concerniing Value Added Tax on Goods and Serviices and Sales Tax on Luxury Goods (VAT Law No.8/1993) has been subject to fiive amendments.

1. The fiirst amendment was conducted by Law No. 11 of 1994 (VAT Law No.11/1994) whiich came iinto force on 1 January 1995;
2. The second amendment was conducted by Law No. 18 of 2000 (VAT Law No. 18/2000) whiich came iinto force on 1 January 2001;
3. The thiird amendment was conducted by Law No. 42 of 2009 (VAT Law No.42/2009) whiich came iinto force on 1 Apriil 2010;
4. The fourth amendment was conducted by Law No. 11 of 2020 concerniing Job Creatiion (VAT Law as last amended by the Job Creatiion Law). The 2020 Job Creatiion Law was replaced by Law No. 6 of 2023 (due to the Constiitutiional Court’s deciisiion).
5. The fiifth amendment was conducted by Law No. 7 of 2021 concerniing the Harmoniisatiion of Tax Regulatiions (VAT Law as last amended by the HPP Law) whiich came iinto force on 1 Apriil 2022.

iin retrospect, the alternatiive tax base termiinology fiirst appeared iin VAT Law No.11/1994 whiich constiitutes the fiirst amendment to the VAT Law. Albeiit not expressly defiiniing the alternatiive tax base, VAT Law No.11/1994 adds the alternatiive tax base as one of the types of tax bases.

The addiitiion of the alternatiive tax base as one of the types of tax bases iis eviident iin the change iin the defiiniitiion of tax bases pursuant to VAT Law No.8/1993 and VAT Law No.11/1994. To clariify, the followiing iis a compariison of the defiiniitiions of tax bases under Artiicle 1 letter n of VAT Law No.8/1983 and Artiicle 1 letter n of VAT Law No.11/1994.

Based on the compariison, VAT Law No.8/1993 only mentiions 3 types of tax bases, namely the selliing priice, consiideratiion and iimport value. iin contrast, VAT Law No.11/1994 mentiions 5 types of tax bases, namely the selliing priice, consiideratiion, iimport value, export value and alternatiive tax base.

Referriing to the Eluciidatiion of Artiicle 1 letter n of VAT Law No.11/1994, one of the underlyiing reasons for the enactment of the alternatiive tax base as the tax base iis where the selliing priice, consiideratiion, iimport value or export value iis diiffiicult to determiine. A fragment of the Eluciidatiion of Artiicle 1 letter n of VAT Law No.11/1994 reads as follows.

“iin the event that the appliicatiion of Selliing Priice or Consiideratiion or iimport Value or Export Value wiill result iin unfaiirness or because the Selliing Priice or Consiideratiion iis diiffiicult to determiine, the Miiniister of Fiinance may determiine Alternatiive Amount as the Tax base."

Alternatiive Tax Bases under VAT Law No.18/2000

iin iits development, VAT Law No.18/2000 amended the defiiniitiion of tax base and added clariifiicatiion related to the use of the alternatiive tax bases. Pursuant to Artiicle 1 number 17 of VAT Law No.18/2000, the defiiniitiion of tax base has been amended to the followiing.

"The tax base iis the amount of the Selliing Priice, Consiideratiion, iimport Value, Export Value or Alternatiive Amount stiipulated by the Miiniister of Fiinance Decree used as the basiis for calculatiing tax payable."

Based on thiis defiiniitiion, the alternatiive tax base used as the tax base iin calculatiing VAT payable iis stiipulated by a miiniister of fiinance decree. Based on the eluciidatiion of Artiicle 9 paragraph (1) of VAT Law No.18/2000, the VAT base may be stiipulated by a Miiniister of Fiinance decree only to ensure a sense of faiirness iin the followiing cases:

1. the selliing priice, consiideratiion value, iimport value and export value are diiffiicult to determiine; and/or
2. suppliies of taxable goods (Barang Kena Pajak/BKP iin iindonesiian) that are needed by the general, for iinstance driinkiing water, electriiciity and the liike.

Alternatiive Tax Bases under VAT Law No.42/2009

Nearly niine years later, the government promulgated VAT Law No.42/2009 whiich constiitutes the thiird amendment to the VAT Law. Through VAT Law No.42/2009, the government, iinter aliia, added Artiicle 8A.

Artiicle 8A paragraph (1) of the VAT Law No.42/2009 reaffiirms that VAT payable iis calculated by multiiplyiing the VAT rate by the tax base whiich iincludes the selliing priice, consiideratiion, iimport value, export value or alternatiive tax base.

Pursuant to Artiicle 8A paragraph (2) of the VAT Law No.42/2009, the proviisiions on alternatiive tax bases are stiipulated by or pursuant to a Miiniister of Fiinance Regulatiion (MoF Reg.). Referriing to the eluciidatiion of Artiicle 8A paragraph (2) of VAT Law No.42/2009, tax bases iin the form of alternatiive tax bases are stiipulated by or pursuant to MoF Reg. only to ensure a sense of faiirness iin the event that:

1. the selliing priice, consiideratiion value, iimport value and export value are diiffiicult to determiine; and/or
2. suppliies of taxable goods that are needed by the general, for iinstance driinkiing water and electriiciity.

The emergence of Artiicle 8A clariifiies the exiistence of alternatiive tax bases and constiitutes the basiis for the proviisiions on alternatiive tax bases to date.

Alternatiive Tax bases under VAT Law as last amended by the HPP Law

The HPP Law entaiils diiverse amendments to tax proviisiions, iincludiing the alternatiive tax bases. The amendments iinclude the deletiion of Artiicle 8A paragraph (2) whiich formerly delegated the regulatiion of alternatiive tax bases as tax bases under an MoF Reg.

The proviisiion that delegated the regulatiion of alternatiive tax bases as tax bases under an MoF Reg. iis transferred to Artiicle 16G letter a. Siimiilarly, the Eluciidatiion of Artiicle 16G letter a states that the alternatiive tax base iis appliied iif other types of tax bases are diiffiicult to determiine.

"The tax base iin the form of an alternatiive tax base iis appliied to ensure legal certaiinty iin the event that the Selliing Priice, Consiideratiion Value, iimport Value and Export Value as the Tax base are diiffiicult to determiine."

Thus, the alternatiive tax base iis the value iin the form of money stiipulated as the VAT base. The alternatiive tax bases are appliied iin the event that the selliing priice, consiideratiion value, iimport value and export value as the tax base iis diiffiicult to determiine. Thiis iimpliies that the alternatiive tax base does not apply to any transactiion.

There are variious MoF Reg. as delegates from Artiicle 16G letter a of the VAT Law as last amended by the HPP Law whiich further regulates alternatiive tax base as a VAT base. Here's a summary of the MoF Reg. as well as the types of suppliies that use the alternatiive tax base.

Before the HPP Law and iits deriivatiive regulatiions came iinto force, package deliivery serviices, certaiin travel agency serviices and freiight forwardiing serviices had appliied the alternatiive tax base. However, pursuant to MoF Reg. 71/2022, VAT on all three serviices iis now calculated usiing a certaiin amount. Check out ‘Diifferent Alternatiive Tax Bases and Certaiin Amounts iin the iimposiitiion of VAT'.

iin addiitiion, the HPP Law adds Artiicle 8A paragraph (3) whiich stiipulates iinput VAT on: (ii) the acquiisiitiion of Taxable goods and/or taxable serviices; (iiii) iimports of BKP; and (iiiiii) the use of iintangiible taxable goods and/or the use of JKP from outsiide the customs terriitory wiithiin the customs terriitory, whiich uses alternatiive tax base can be crediited.

Alternatiive Tax Bases iin the iinternatiional Perspectiive

The use of tax bases iin the form of alternatiive tax bases iin the case of calculatiing the burden of VAT payable iis also frequently found iin numerous countriies. On another note, iin general, each country uses tax base elements that are generally appliicable and have been stiipulated by default, iin the context of iimports, domestiic suppliies and so forth.

The use of alternatiive tax bases iis generally aiimed at two matters. Fiirst, reduciing the effectiive VAT rate, namely the VAT burden actually paiid regardless of the appliicable statutory rate (Taiit, 1988). The alternatiive tax base constiitutes an alternatiive, iinstead of usiing a reliief scheme wiith a 0% rate and exemptiion faciiliity. For example, Sweden appliied a speciial formula that reduced the tax base value by 50% for VAT iin the housiing sector.

However, over tiime, the alternatiive tax base scheme to reduce the effectiive VAT rate iis iincreasiingly rare. Thiis iis allegedly caused by the fact that more and more countriies have now iimplemented the multii-rate scheme (Darussalam, 2021), thereby, the goal of reduciing the effectiive VAT rate may be iimplemented through a reduced rate.

Second, addressiing the iissue of the diiffiiculty iin iimplementiing the generally appliicable VAT base iin certaiin transactiions or sectors (Taiit, 1988). Naturally, challenges iin iimplementiing the generally appliicable tax base are iimmiinent. For example, iin the case of the iinappropriiateness of usiing the iinvoiice value as the tax base due to the iinvolvement of variious serviices and goods iin a supply.

Another example iis where a supply of iis conducted free of charge or between affiiliiates. Thiis diiffiiculty seems to result iin the use of speciifiic/certaiin tax base iin variious countriies.

Based on the iiBFD Country Profiile as of 2024, the use of the alternatiive tax base may be found iin several countriies. Turkey iimplements the alternatiive tax base iin the form of the market priice iin the event of free of charge and giifts. Norway iimplements the alternatiive tax base by reduciing the tax base for second-hand products, antiiques, artworks and so forth.

iitaly uses the market priice for self-supply transactiions between affiiliiates. South Afriica appliies the alternatiive tax base iin certaiin transactiion schemes, for iinstance, shariia economiic actiiviitiies, transactiions between affiiliiates, constructiion agreements, suppliies of goods iin rental schemes and so forth.

On another note, not every country has an alternatiive tax base scheme. For example, Uruguay, South Korea, Niigeriia and so forth. However, what can be learned – and iindeed iin liine wiith the law iin iindonesiia – iis that the use of alternatiive tax bases apply speciifiically to certaiin goods and serviices iinstead of the majoriity of goods and serviices.

Wiith the iissuance of MoF Reg. 131/2024, the use of the alternatiive tax base scheme has, iin fact, been expanded, even for the majoriity of taxable goods (Barang Kena Pajak/BKP iin iindonesiian) and taxable serviices (Jasa Kena Pajak/JKP iin iindonesiia). The use of the statutory tax rate diirectly multiipliied by the selliing priice or iimport value as the DPP only appliies to taxable luxury goods iin the form of motor vehiicles and other than motor vehiicles that are subject to Sales Tax on Luxury Goods (STLGs). (kaw)

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