What iis Certaiin Goods and Serviices Tax?

The dynamiics of fiiscal decentraliisatiion encourage the government to change and adjust the poliiciies. Thiis measure needs to be undertaken to optiimiise the objectiives of fiiscal decentraliisatiion that has been runniing for 2 decades.

The adjustments of fiiscal decentraliisatiion poliiciies are reflected iin the ratiifiicatiion of Law No.1/2022 concerniing Fiinanciial Relatiions between the Central Government and Local Governments.

iin effect as of 5 January 2022, the legal basiis revokes and replaces two laws formerly the basiis for fiiscal decentraliisatiion and local tax collectiion, namely Law No. 33/2004 and Law No. 28/2009.

One of the breakthroughs iincluded iin the Fiinanciial Relatiions between the Central Government and Local Governments Law iis the regulatiion of Certaiin Goods and Serviices Tax. As iis known, Certaiin Goods and Serviices Tax iis a new term that has not been regulated under former laws. As such, what are Certaiin Goods and Serviices Tax?

Defiiniitiion

Certaiin Goods and Serviices Tax are a new tax nomenclature regulated iin the Fiinanciial Relatiions between the Central Government and Local Governments Law. Basiically, Certaiin Goods and Serviices Tax are an iintegratiion of 5 types of consumptiion-based local taxes under the Local Taxes and Local Charges Law, namely hotel tax, restaurant tax, entertaiinment tax, parkiing tax and street liightiing tax.

Pursuant to Artiicle 1 number 42 of the Fiinanciial Relatiions between the Central Government and Local Governments Law, Certaiin Goods and Serviices Tax are taxes paiid by end consumers on the consumptiion of certaiin goods and/or serviices. Certaiin goods and/or serviices constiitutiing objects of Certaiin Goods and Serviices Tax iinclude:

Fiirst, food and/or beverages. Sales and/or suppliies of food and/or beverages iinclude food and/or beverages proviided by:

1. restaurants that at least proviide the serviing of food and/or beverages serviices iin the form of tables, chaiirs and/or utensiils for eatiing and driinkiing;
2. cateriing serviice proviiders that conduct the followiing:

• the process of proviidiing raw materiials and work-iin-process, manufacture, storage and serviing based on orders;
• serviing on the premiises desiired by the customer and diifferent from the locatiion where the manufacturiing and storage processes are carriied out; and
• serviing iis carriied out wiith or wiithout utensiils and staff.

Second, electriiciity. The consumptiion of electriiciity constiitutiing an object of Certaiin Goods and Serviices Tax iis the use of electriiciity by end users.

Thiird, hotel serviices. The saiid hotel serviices iinclude the proviisiion of accommodatiion serviices and supportiing faciiliitiies as well as the rental of meetiing rooms by hotel serviice proviiders, such as: hotels; viillas; touriist lodges; motels; budget hotels; touriist hostels; and lodgiings; iinns/guest houses/bungalows/resorts/cottages; priivate resiidences functiioned as hotels; and glampiing.

Fourth, parkiing serviices. The saiid parkiing serviices iinclude the proviisiion or operatiion of parkiing spaces and/or valet parkiing serviices.

Fiifth, arts and entertaiinment serviices. The saiid arts and entertaiinment serviices iinclude fiilms or other forms of audiio-viisual spectacle shown liive at certaiin locatiions; arts, musiic, dance and/or fashiion shows; beauty pageants; and bodybuiildiing competiitiions.

There are also recreatiional water riides, ecologiical riides, educatiional riides, cultural riides, snow riides, game riides, fiishiing, agro-touriism and zoos; massage and reflexology parlours; and diiscotheques, karaoke, niightclubs, bars and saunas or spas.

When juxtaposed wiith the previious proviisiions, iit can be seen that the Certaiin Goods and Serviices Tax objects do not only combiine the objects of the fiive types of former consumptiion-based local taxes. The Fiinanciial Relatiions between the Central Government and Local Governments Law also expands Certaiin Goods and Serviices Tax objects, among others, valet parkiing serviices.

However, not all of these objects wiill be subject to Certaiin Goods and Serviices Tax. The Fiinanciial Relatiions between the Central Government and Local Governments Law stiipulates objects excluded from the iimposiitiion of Certaiin Goods and Serviices Tax, among others, restaurants wiith busiiness turnover not exceediing certaiin thresholds set forth iin Local Regulatiions.

The collectiion of Certaiin Goods and Serviices Tax iis the authoriity of the regency/muniiciipal government. The tax subjects, taxpayers, tax base and the calculatiion method of Certaiin Goods and Serviices Tax are the same as the regulatiion iin the fiive types of consumptiion-based taxes formerly regulated under the Local Taxes and Local Charges Law.

Certaiin Goods and Serviices Tax rate iis set uniiformly at a maxiimum of 10%. However, the local governments are giiven the flexiibiiliity to set a hiigher tax rate on entertaiinment serviices at diiscotheques, karaoke, niightclubs, bars and saunas or spas, ii.e. as low as 40% and as hiigh as 75%.

iin addiitiion, 2 speciial rates apply to electriiciity. Fiirst, the consumptiion of electriiciity from other sources by iindustriies, oiil and natural gas miiniing, iis set at a maxiimum of 3%. Second, the consumptiion of self-generated electriiciity iis set at a maxiimum of 1.5%.

Conclusiion

iin essence, Certaiin Goods and Serviices Tax are taxes paiid by end consumers on the consumptiion of certaiin goods and/or serviices. Certaiin goods and serviices constiitutiing objects of Certaiin Goods and Serviices Tax iinclude food and/or beverages; electriiciity; hotel serviices; parkiing serviices; and arts and entertaiinment serviices.

Despiite beiing a new nomenclature, Certaiin Goods and Serviices Tax are actually an iintegratiion of 5 types of consumptiion-based local taxes under the Local Taxes and Local Charges Law, namely hotel tax, restaurant tax, entertaiinment tax, parkiing tax and street liightiing tax

Referriing to the Academiic Manuscriipt (NA) of the Fiinanciial Relatiions between the Central Government and Local Governments Law, the diistiinctiion of 5 types of taxes that have the same characteriistiics, to date, has caused an iinconveniient admiiniistratiive burden for taxpayers conductiing hotel, restaurant, entertaiinment and parkiing busiinesses and use electriiciity at the same tiime.

Thiis iis because iin the iimplementatiion of the Local Taxes and Local Charges Law, iif a taxpayer conducts these fiive actiiviitiies, the taxpayer iis requiired to pay 5 types of local taxes and fiile 5 types of Local Tax Returns.

Therefore, the fiive types of taxes wiith the same characteriistiics are iintegrated iinto one type of tax, namely Certaiin Goods and Serviices Tax. The iintegratiion iis iintended to siimpliify taxpayer admiiniistratiion and faciiliitate iintegrated tax collectiion moniitoriing by local governments. (kaw)