Definition of VAT: History, Tariffs, and Types of Taxable Goods

Definition of VAT History, Tariffs, and Types of Taxable Goods – The government’s plan to increase VAT several months ago had become a hot topic of discussion among the public. Both on social media, national media, as well as direct conversations are all busy. Moreover, the plan to increase VAT from 10% to 12% was announced when many Indonesians are experiencing economic difficulties due to the Covid-19 pandemic. What exactly is VAT? Why the increase can make a stir in the community?  we meet again to discuss VAT. Come on, let’s get started!

The planned increase is known based on the draft revision of Law No. 6/1993. The Law discusses General Provisions and Tax Procedures (RUU KUP). The plan, the plan will be discussed together with the House of Representatives (DPR) RI.

Definition of VAT

Definition of VAT History, Tariffs, and Types of Taxable Goods

VAT stands for Value Added Tax. This tax is one of the sources of state income for public consumption. The definition of VAT is a levy charged on buying and selling transactions that occur due to value added. The levy is borne by entrepreneurs who have become Taxable Entrepreneurs (PKP).

In simple language, when you make a transaction of buying and selling goods or services as a final consumer, you will be charged a few rupiahs for the transaction. Because the goods or services that buy are considered to have added value in their circulation from the seller to the consumer.

It is the final consumer who pays the VAT. Meanwhile, it is the seller/trader who collects, deposits, and reports VAT to the state. The VAT collected by the seller does not go into personal pockets, but will be deposited with the state. And entrepreneurs who deposit VAT are entrepreneurs who have entered the PKP category. Judging from the process, VAT is an indirect tax.

VAT history

Indirect consumption tax collection actually existed before VAT was applied. At that time, only certain products were subject to indirect taxes. For example, the collection of excise taxes on tobacco and alcohol products. In addition to these two products, other indirect taxes will be imposed, namely sales tax and circulation tax.

However, the two taxes are distorted, because it seems as if there is a tax on top of a tax. In addition, the demands for a high increase in demand provide policy holders to look for other alternatives.

is Dr. Wilhelm von Siemens who realized the problems of applying the circulation tax. From his observations, the German entrepreneur developed the basic idea of ​​VAT. In an article published in 1920, he called it an improvement in the circulation tax or an improvement in the circulation tax.

In addition to Von Siemens, the initial idea of ​​​​VAT was also coined by Thomas S. Adams in 1921. The concept that was initiated in the United States explains how to reduce sales tax with taxes that have been previously paid (due to the purchase of goods and / or services related to business). executed). This method aims to reduce the cascading effect (tax above tax).

The ideas and concepts above form the conclusion that the improvement of circulation tax is a tax that is imposed and collected at every stage of production and distribution of goods and/or services. However, the tax is imposed and collected at one time only, namely at the time of the transaction. This is the origin of the VAT.

In historical records, the first country to apply VAT was France, not Germany or the United States. At that time, VAT was applied in France in 1948 at the manufacturing stage. In 1954, France changed its taxation policy in the country. VAT which was initially only for the manufacturing stage was then levied at each stage of production and distribution.

In 1960 and 1970 European countries began to impose VAT in their respective countries. Meanwhile, in developing countries, VAT has been enforced since 1980.

VAT in Indonesia

Prior to the implementation of VAT, in Indonesia the Development Tax I (PPb I) and Circulation Tax (PPe) were applied. However, judging from the practice, PPb I and PPe still use Dutch colonial practices. Since the enactment of Law Number 8 of 1983, the VAT Law has been amended three times.

The objectives of the amendments to the VAT Law are:

  1. Creating a fairer and simpler tax system.
  2. Increase state income.
  3. Increase legal certainty and justice.
  4. Securing state revenues so that they can carry out national development independently.

VAT Characteristics

Some of the characteristics of VAT are as follows:

  1. VAT is an example of an indirect tax. That is, the taxpayer (the final consumer) and the person in charge of paying taxes to the tax office (the seller) are done by different people.
  2. It is objective because the amount of tax that must be paid is adjusted to the object of the tax (transacted goods and services), not depending on the tax subject (who is the taxpayer).
  3. Multi stage tax because the tax is imposed on every production and distribution process since leaving the factory.
  4. Using invoices.
  5. Collected on the basis of domestic consumption.
  6. Avoid double tax because VAT is only imposed on value added.
  7. Non-duplication because there is an input tax credit mechanism.
  8. The calculation of VAT uses an indirect reduction method by taking into account the amount of input tax and output tax.

VAT rate

The basic tariff applied in VAT has been stated in Law Number 42 of 2009 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods. The VAT rates are as follows:

  1. Export of Intangible Taxable Goods, Intangible Taxable Goods and Export of Taxable Services: 0% VAT Rate.
  2. All products circulating in Indonesia. Including the Exclusive Economic Zone and continental areas in which the customs law applies: 10% tariff.
  3. Luxury goods: VAT rates as low as 10% and as high as 200%.
  4. Goods and/or services that are subject to 10% VAT are subject to change. The government is authorized to set VAT in the range of 5%-20%.

The VAT rate that must be paid by the buyer is clearly written in the receipt or proof of purchase. Usually written VAT or Value Added Tax (VAT). Thus, when  buys a taxable item, the amount that has to pay is the price of the item plus the amount of tax imposed. However, sometimes the receipt does not find VAT, so in that case the price of the goods includes VAT.

Taxable Goods

Not all goods and/or services are taxed for each transaction. There are some products that are not taxed. Below are goods that are not subject to VAT, namely:

1. Goods of basic needs needed by very many people.


Rice, grain, corn, sago, soybeans, salt, both iodized and non-iodized, meat (fresh meat that has not been processed, but has gone through the process of being slaughtered, hulled, cut, cooled, frozen, packaged or not packaged, salted, limed , pickled, preserved in other ways, and/or boiled), eggs (unprocessed eggs, including cleaned, salted or packaged eggs), milk (dairy milk, whether refrigerated or heated, does not contain added sugar or other materials, and/or packaged or unpackaged), fruits (picked fresh fruits, whether they have been washed, sorted, peeled, cut, sliced, graded, and/or packaged or unpackaged) , vegetables (fresh vegetables that are picked, washed, drained and/or stored at low temperatures, including chopped fresh vegetables)

2. Food and drinks served in restaurants, hotels, restaurants, food stalls, or the like.

This also includes food and beverages consumed on site or taken home, including food delivered by catering or catering companies.

3. Mining or drilling results are taken directly from the source.

Examples: crude oil (crude oil), natural gas (excluding natural gas such as LPG which is ready to be consumed directly by the public), geothermal, asbestos, slate, semi-precious stone, limestone, pumice, gemstone, bentonite, dolomite , feldspar, rock salt (halite), graphite, granite/andesite, gypsum, calcite, kaolin, leucite, magnesite, mica, marble, nitrate, obsidian, ocher, sand and gravel, quartz sand, pearlite, phosphate (phosphate). ), talc, fullers earth, diatomaceous earth, clay, alum (alum), tras, yarosi, zeolite, basalt, and trakkit, iron ore, tin ore, gold ore, copper ore, nickel ore, silver ore , as well as bauxite ore.

4. Gold bullion, money, and securities (example: stocks)

And services that are not subject to VAT are as follows:

  • Social services.
  • Medical health services.
  • Finance or financial services.
  • Postage service with postage.
  • Spiritual or religious services.
  • Educational or educational services.
  • Entertainment and arts services.
  • Broadcasting services that are not used for advertising.
  • Land and water public transportation services. As well as domestic transportation services that are inseparable from foreign transportation services.
  • Employment services.
  • Services in the hospitality sector.
  • Services provided by the government with the aim of running the government in general.
  • Services that provide parking.
  • Public telephone services that use coins.
  • Money transfer service using postal money orders.
  • Catering or catering services.

In addition to the goods and services mentioned, the state imposes VAT on each transaction.

VAT Imposition Basics

The amount of VAT owed can be determined by multiplying the VAT rate by the Tax Base (DPP) which includes several things as explained below:

1. Selling Price

Value in money + all costs (insurance costs, transportation costs, shipping costs, maintenance costs, warranty fees, and other costs requested or should be requested by the seller due to the delivery of taxable goods (BKP)) – the rebate stated in the tax invoice = SELLING PRICE.

2. Replacement

Value in money + all costs (insurance costs, transportation costs, shipping costs, maintenance costs, warranty fees, and other costs requested or should be requested by the seller due to delivery, export, utilization of intangible JKP / BKP) – the discount as stated in the tax invoice = Reimbursement.

3. Import and Export Value

Import Value = [Cost+ Insurance+ Freight (CIF)] + Import Duty

While the value of exports is the value in the form of money. Includes all fees requested or should be requested by the exporter or exporter.

4. Other Values

In accordance with the Regulation of the Minister of Finance Number 121/PMK.03/2015, another value in the form of money is determined as the basis for determining the tax imposition.

It should be noted that the tax base of selling price points and reimbursements is often influenced by special relationships. What is meant by a special relationship when the following things happen:

  • An entrepreneur has a direct or indirect investment of 25% or more in other entrepreneurs. Or the relationship of an entrepreneur with two or more other entrepreneurs has an investment of 25% or more. Similarly, the relationship between two or more entrepreneurs mentioned last.
  • Or an entrepreneur controls another entrepreneur (or two or more controlled by him) either directly or indirectly.
  • Or there is a family relationship by blood or by marriage (family relationship due to marriage ties) in a straight line of one degree and/or to the side of one degree.

Taxable Entrepreneurs (PKP) and Exceptions

is an entrepreneur who can deliver taxable goods and taxable services of more than Rp. 4,800,000,000.00 (four billion eight hundred million rupiah) in one year, has an obligation to make a business report to be confirmed as a PKP.

If the business income, whether goods or services, is not more than 4.8 billion rupiah, then is not obliged to be confirmed as a PKP. However, if  is willing,  can report  efforts to be confirmed as a PKP.

Please note, PKP has an obligation to collect, deposit, and report the VAT or PPnBM owed. VAT is paid in accordance with the nominal amount of delivery of taxable goods or taxable services.

Why VAT Must Be Paid?

From all the explanations above, maybe some of us are wondering. Why do we have to pay VAT? Doesn’t paying VAT make the price of the goods or products we consume more expensive?

As we discussed above, the basic concept of VAT is a tax on every consumption of taxable goods or services. Most of the goods or services we consume are taxed. If collected, we will find a sizeable fund received by the state. VAT is one of the highest sources of state revenue.

The household is a miniature of a country. In the household, of course divides the finances for certain posts. So is the state. In carrying out its duties, the government distributes finances for certain posts.

So far, VAT and other taxes are used by the government to carry out various activities, such as:

  1. Development of public facilities and infrastructure. Such as bridges, schools, hospitals, health centers, parks, tourist attractions, housing, roads and toll roads, airports, ports, terminals, and others.
  2. National defense and security. Such as weapons, defense equipment, training, transportation fleets, uniforms, building construction, and so on.
  3. Education. In the form of scholarships, subsidies, procurement of library books, procurement of equipment, laboratories, and so on.
  4. Mass transportation for the operation of Damri Buses, trains, and planes.
  5. Salaries and allowances for the State Civil Apparatus (ASN), the Indonesian National Army (TNI), and the Indonesian National Police (Polri).
  6. Environmental Sustainability. Such as forest care, forest nurseries after the wood is used, and so on.
  7. Agriculture and Fisheries. Such as education to farmers, fertilizer assistance, boat assistance, and so on.
  8. Tourist. Such as the construction of tourist attractions.
  9. Cooperatives and SMEs. Such as grants for micro, small, medium enterprises, and cooperatives.
  10. Paying the national debt.
  11. And others.

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