The government, through Finance Minister Regulation No.131/2024, has imposed a value-added tax (VAT) rate of 12 percent, albeit limited to luxury goods and services.

The policy introduces a new dynamic to Indonesia’s taxation landscape. According to the preamble to the regulation, it aims to promote fairness across society.

However, this policy also serves as a test of vigilance and compliance for taxable entrepreneurs (PKPs). Misunderstanding or misapplying the regulation could not only harm consumers but also expose PK.Psto serious legal consequences. Why is this the case?

Specifically the 12 percent VAT rate applies only to luxury goods and services that were previously subject to the luxury goods sales tax (PPnBM). Nonluxury goods and services remain subject to the standard 11 percent VAT.

This new regulation creates a dual rate system, requiring businesses to be extra meticulous in tax classification and collection. Jn practice however, many PKPs either misinterpret the rule or deliberately apply the 12 percent rate uniformly to all goods and services. As a result, consumers are overcharged by 1 percent.

The real issue is that this 1 percent surcharge doesn’t go to the national treasury. Instead, it becomes an unintended windfall for businesses, unless a refund mechanism is put in place.

As of Jan. 3, 2025, the refund mechanism for such surcharges is governed by the recently issued Taxation Director General Regulation No. 1/2025.

This regulation stipulates that Pl<Ps must refund any excess VAT collection resulting from incorrect tax bases lo the party that paid it. The mechanism requires the PKP to revise or replace the tax invoice or equivalent document according to the consumer’s request.

Surcharges or errors in VAT collection are not merely technical mistakes. Behind that seemingly small 1 percent lies the potential for far greater harm, both morally and legally.

from the consumer’s perspective, such practices undermine the principle of fairness emphasized in Regulation No. 131/2024. They are forced to pay higher taxes on goods or services that shouldn’t qualify as luxury items.

For the government, these surcharges do not contribute to tax revenue while at the same time, they erode public trust in U1e tax system.

With the new regulation now in place, PK.Ps who are careless or deliberately exploit this situation still face severe legal risks. Article 39, paragraph 1, letters c and i of the General Tax Provisions and Procedures Law (UU I<UP) clearly outlines the consequences.

Failure to remit collected taxes that results in state revenue losses can lead to punishment ranging from six months to six years in prison.

Additionally, offenders are required to pay tines of at least twice and at most four times the amount of the collected tax. ln fact, numerous court rulings have imposed criminal penalties for similar violations.

Regardless of the debate over whether the J percent surcharge constitutes a loss to the state, entrepreneurs must remain cautious, as the increase undeniably harms economic growth.

Viewing it from this perspective emphasizes the need for vigilance and careful compliance, serving as a stark warning to PJ<Ps not to take these matters lightly.

Errors in applying the VATrate are commonly caused by several factors, such as a lack of understanding of the regulations, insufficient government outreach to businesses or outright opportunism, Regardlessof the reason, negligence, let alone intentional wrongdoing, is not a legally acceptable excuse.

Before the law, PKPs bear full responsibility for understanding and correctly applying tax rules. This aligns with the principle of legal fiction, which assumes that once a regulation is enacted, everyone is presumed to know it (presumption lures rle iure). As a. result, ignorance of the law is no excuse and does not absolve one from legal liability.

Failing to differentiate between the goods and services subject to 12 percent and 11 percent VAT reflects poorly on a company’s tax practices.

To avoid errors, PKPs must ensure they have a thorough understanding of tax regulations, including the new provisions in Finance Minister Regulation No. 131/2024.

An essential first step is internal training for a company’s administrative and financial staff. The next step involves updating the company’s standard operating procedure for taxation to distinguish between applicable rates, as well as addressing other tax obligations beyond VAT.

Furthennore,consulting with professional tax advisors has become increasingly crucial to ensure compliance with tax regulations and to avoid potential tax disputes.

Beyond these measures, transparency in reporting is equally important. If overcharging has occurred, the amount should be promptly documented and refunded to consumers, even though the process may not be easy. Such efforts not onIy protect U1e company from legal risks, but also demonstrate a commitment to ethical and responsible business practices.

Ultimately, the responsibility for implementing the dual VAT rate does not 1-st solely on the shoulders of entrrepreneurs. The government also bears significant accountability to ensure the policy is implemented effectively and fairly. Comprehensive outreach efforts and technical support for businesses are crucial steps to minimize errors.

Furthermore, the government must adopt a firm stance from the outset when deciding pollicies with far-reaching impacts.

Uncertainty arising from policy flip-flops, particularly concerning the VAT rate hike, creates room for market speculation. This in tum drives up prices even before the regulation is implemented.

Ironically, the public is most affected in this scenario, s peeifically consumers and PK.Ps who face additional burdens and the risk of penalties due to regulatery missteps.

Moving forward, the govern· ment must not gamble with public policies that directly impact the livelihood of so many. The cascading effects of poor policy decisions will only perpetuate greater inequity and injustice.

By Ismail Khozen
Dosen Departemen Ilmu Administrasi Fiskal Universitas Indonesia

Source: The Jakarta Post