This month, I would like to talk about value added tax (VAT) from the omnibus law. The main points of the amendments to the Omnibus Law regarding value-added tax are 1) changes to taxable and non-taxable items, and 2) changes to the conditions for input VAT that can be deducted from input VAT.

1) From taxable to non-taxable / From non-taxable to taxable

Previously, consignment sales companies were subject to tax when they entrusted the goods to the consignee, but the taxable time has been postponed until the time of sale. In addition, the transfer of taxable assets for investment in kind has been added to the tax exemption category, along with the previously permitted merger, dissolution, establishment, extinction, and acquisition of businesses. Conversely, coal, which was previously tax exempt, has now become taxable. In both cases, the transaction format and objects are narrowed down, and the number of businesses affected seems to be limited.

2) Conditions for input VAT that can be deducted from input VAT

① Businesses that will start selling from now on
Previously, the scope of input VAT deduction for businesses that had not yet started production or sales was limited to the purchase of capital goods, but after the revision by the Omnibus Law, input VAT can now be deducted for all taxable transactions, not just the purchase of capital goods. The period until sales start is 3 years (there is a detailed regulation that says 5 years in the manufacturing industry). This is likely to be an attractive content for newly established companies that are about to start sales.

②Businesses that will become taxable entities in the future
If annual sales exceed Rp. 4.8 billion, registration as a taxable entity is required. Apply to the tax office to become a taxable entity for amounts exceeding Rp. 4.8 billion. Input VAT can now be deducted during the period from application to approval. At the same time, it is also necessary to recognize the temporary VAT received during this period. Specifically, 10% of sales during this period will be taken as provisional VAT, and provisional payment VAT will be limited to 80% of the amount equivalent to provisional VAT, so 2% of sales will need to be paid. At first glance, it is an advantage to be able to deduct input VAT that has not been approved by the taxable entity, but it is important to note that input VAT is also recognized.

③Businesses undergoing tax audits
Previously, input VAT recognized after the start of a tax audit could not be deducted, but this includes undeclared input VAT discovered during a tax audit and input VAT paid by SPHP issued at the end of a tax audit. This can be said to be a common benefit for all taxable entities that may be subject to tax audits.

Related laws and regulations: UU 11 Year 2020 Tentang Cipta Kerja (Omnibus method) Pasal 112
PMK (Finance Minister Order) 18