The Ministry of Finance has issued a regulation concerning procedures for the granting of VAT exempt facilities on imports of certain strategic Taxable Goods (Barang Kena Pajak/BKP) and supplies of flats.

The provisions are stipulated under the Minister of Finance Regulation No. 115/PMK.03/2021 concerning Procedures for the Granting of Value Added Tax Exemption Facilities on Imports and/or Supplies of Certain Strategic Taxable Goods, Procedures for the Payment of Value Added Tax on Certain Strategic Taxable Goods Exempt from Value Added Tax that Are Used Not in Accordance with the Original Purpose or Transferred, and the Imposition of Penalties for the Late Payment of Value Added Tax (MoF Reg. 115/2021).

These provisions constitute an implementing regulation of Article 6 of Government Regulation No. 48/2020 concerning Amendments to Government Regulation No. 81 of 2015 concerning Imports and/or Supplies of Certain Strategic Taxable Goods that Are Exempt from Value Added Tax (Gov. Reg. 48/2020).

This ministerial regulation has been issued to improve legal certainty and ease of doing business. In addition, this latest regulation is intended to integrate procedures to improve services in the granting of VAT exempt facilities on imports and/or supplies of certain strategic BKP.

This regulation stipulates two main materials, i.e. VAT exemptions on imports of strategic BKP and VAT exemptions on supplies of flats.

a.	VAT Exemptions on Imports of Strategic BKP

	As per Article 2 paragraph (1) of MoF Reg. 115/2021, imports and/or supplies of certain strategic BKP are exempt from the imposition of VAT. Certain strategic BKP whose imports are exempt from the imposition of include the following ten objects:
	i.	machinery and factory equipment which constitute an integral unit, either installed or detached, which are used directly in the process of producing BKP by a Taxable Person for VAT Purposes (Pengusaha Kena Pajak/PKP) that produces the BKP, including those imported by the party carrying out integrated construction work, excluding the spare parts;
	ii.	goods produced by businesses in the marine and fishery sector, both fish catching and aquaculture, as stated in the appendix of government regulations concerning certain strategic BKP;
	iii.	raw, tanned hides and skins;
	iv.	seeds and/or pips from agricultural, plantation, forestry, animal husbandry, or fishery goods;
	v.	animal feed, not including pet feed;
	vi.	fish feed;
	vii.	feed ingredients for the manufacture of animal feed and fish feed, excluding feed additives and feed supplements, the criteria and/or details of feed ingredients are regulated by a ministerial regulation;
	viii.	raw materials of silver craft in the form of granulated silver and/or in the form of silver bullion; and
	ix.	liquified natural gas.

	In contrast, supplies of twelve certain strategic BKPs are exempt from the imposition of VAT as follows:
	i.	machinery and factory equipment which constitute an integral part, either installed or detached, which are used directly in the process of producing BKP by a PKP that produces the BKP, including those imported by the party carrying out integrated construction work, excluding the spare parts;
	ii.	goods produced by businesses in the marine and fishery sector, both fish catching and aquaculture, as stated in the appendix of government regulations concerning certain strategic BKP;
	iii.	raw, untanned hides and skins;
	iv.	livestock whose criteria and/or details are regulated by a ministerial regulation after receiving consideration from the minister who administers government affairs in the agricultural sector;
	v.	seeds and/or pips from agricultural, plantation, forestry, animal husbandry, or fishery goods
	vi.	animal feed, not including include pet feed;
	vii.	fish feed;
	viii.	feed ingredients for the manufacture of animal feed and fish feed, excluding feed additives and feed supplements, the criteria and/or details of feed ingredients are regulated by a ministerial regulation after receiving consideration from the minister who administers government affairs in the agricultural sector;
	ix.	raw materials of silver craft in the form of granulated silver and/or in the form of silver bullion
	x.	residential units of simple proprietary flats of which the acquisition is financed through credit or subsidized housing ownership financing that meets the provisions
	xi.	electricity, including the cost of electricity installation and the cost of electrical loads, except for houses with a power of more than 6,600 volt-amperes; and
	xii.	liquified natural gas.

	This regulation also stipulates the criteria for machinery and factory equipment whose imports and/or supplies are exempt from the imposition of VAT. First, machinery and factory equipment that are used directly in the process of producing BKP in the production division. Second, machinery and factory equipment that are installed or detached, but not including spare parts. Third, factory equipment attached to the machinery. Under MoF Reg. 115/2021, the Ministry of Finance expands the definition of machinery and factory equipment, including power generation units, which constitute an integrated part of the processing industry with an electric supply business license. VAT is exempted using a VAT Exemption Certificate (Surat Keterangan Bebas/SKB) or without using a VAT SKB. The VAT SKB is granted for two supplies. First, imports of machinery and factory equipment for which an application for import duty exemptions is submitted and eligible for these import duty exemptions. Second, imports and/or acquisition of machinery and factory equipment for which an application for import duty exemptions is not submitted. Initially, Gov. Reg. 48/2020 stipulates that only two parties are eligible for VAT exemption facilities on imports of equipment and machinery and receive a VAT SKB, i.e. Taxable Persons for VAT Purposes (Pengusaha Kena Pajak/PKP) that produce BKP or project owners. With the issuance of MoF Reg. 115/2021, the Ministry of Finance adds one subject as the recipient of VAT exemption facilities on imports of equipment and machinery, i.e. Engineering, Procurement, and Construction (EPC) Contractors that carry out integrated construction work. In other words, currently, three parties are eligible for VAT exemption facilities on imports of equipment and machinery and receive a VAT SKB. To obtain a VAT SKB on imports of machinery and factory equipment for which an application for import duty exemptions is also submitted, the PKP must first hold a masterlist. The masterlist is issued based on the application for import duty exemptions on imports of machinery and factory equipment submitted electronically by the PKP or project owner through the information system provided by the Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal/BKPM). VAT SKB is submitted to the Directorate General of Taxes (DGT) electronically through the Indonesia National Single Window System (SINSW). The application for a VAT SKB is followed up if the PKP has fulfilled the following three things cumulatively:
	i.	annual income tax return for the last two taxable years and periodic VAT returns for the last three taxable periods as an obligation based on statutory provisions in the field of taxation;
	ii.	not having tax liabilities or having tax liabilities. If the PKP has tax liabilities, the PKP must obtain a permit to defer or pay taxes in installments based on statutory provisions in the field of taxation; and
	iii.	having submitted a report on the realization of imports and acquisitions as an obligation.

	Applications for VAT SKB must also be attached with an Import Requirement and Acquisition Plans (Rencana Kebutuhan Impor dan Perolehan/RKIP). Upon applications for VAT SKB attached with RKIP, the DGT automatically issues approved VAT SKB and RKIP through SINSW. The issued VAT SKB is valid until the expiration of the masterlist. More detailed provisions on procedures for obtaining VAT SKB and the submission process through SINSW for all recipients of VAT exemption facilities are stipulated under Article 6 to Article 16 of MoF Reg. 115/2021. PKP importing machinery and equipment and PKP supplying strategic BKP must include information on the VAT SKB number which constitutes the basis for the granting of VAT exempt facilities in the customs declaration in the context of importing goods. Tax invoices are prepared as per the provisions on the granting of VAT exemptions facilities. Tax invoices must include the statement “VAT EXEMPT AS PER GOV. REG NUMBER 81 of 2015 AS AMENDED BY GOV. REG. 48 of 2020”. In the event that the information is not yet available in the application for generating tax invoices, the PKP may update the information to be included in the tax invoice through the application. PKP, project owners, and EPC employers eligible for the VAT SKB facility must submit a report on the realization of imports and acquisitions no later than the end of January after the calendar year concerned. The report on the realization of imports and acquisitions are uploaded through SINSW.

a.	VAT Exemptions on Supplies of Simple Proprietary Flats

	As per Article 18 paragraph (1) of MoF Reg. 115, VAT exemptions on supplies of simple proprietary flats are granted to individuals. The flats must already have a house identification code in the housing developer information application system provided by the relevant ministry. To obtain this facility, an individual must submit a statement to the PKP performing the supply before the supply or upon down payment. The statement includes three things as follows:
	i.	a stamped statement from the buyer and employer concerning monthly income;
	ii.	a stamped statement from the homeowner that the unit is his/her first unit, used as a residence, and will not be transferred within a period of four years; or
	iii.	a photocopy of filing receipt for Individual Annual Income Tax Returns for the last two years.

	Tax invoices must be prepared for supplies of simple proprietary flats eligible for VAT exemptions. The tax invoices shall be filled out completely and correctly and include the buyer’s identity, taxpayer identification number (Nomor Pokok Wajib Pajak/NPWP) or Single Identity Number (Nomor Induk Kependudukan/NIK), and house identification code in the housing developer information application system. The tax invoices must be filed in the Periodic VAT Returns by the PKP supplying the simple proprietary flats. The provisions on tax invoices do not apply to retailer PKP for supplies of simple proprietary flats. In the event that a tax invoice or document equivalent to a tax invoice does not fulfill the provisions, the import and/or supply of certain strategic BKP is deemed not eligible for VAT exemptions. Moreover, MoF Reg. 115/2021 also outlines the details of procedures for the replacement, cancellation, and revocation of VAT SKB as well as repayment, crediting, and imposition of penalties. Even though the VAT SKB has been issued and submitted to the PKP, the project owner, or the EPC employer, the Director General of Taxes may replace, cancel, and/or revoke the VAT SKB ex-officio. If the VAT SKB is replaced, cancelled, revoked, or the use of equipment and machinery is not in accordance with the purpose, the PKP, the project owner, or the EPC employer remain required to pay the VAT payable. When this ministerial regulation comes into force, MoF Reg. No. 268/PMK.03/2015 is declared revoked and not valid. The application for a VAT SKB that has been received by the head of the tax office (Kantor Pelayanan Pajak/KPP) prior to the enactment of this regulation shall be completed as per the procedures and requirements when the application was submitted. VAT SKB issued based on MoF Reg. No. 268/PMK.03/2015, however, may continue to be used no later than 31 December 2021. On another note, valid VAT SKB that has been issued based on MoF Reg. No. 268/PMK.03/2015 shall be replaced or cancelled as per the provisions under this ministerial regulation. This regulation has taken effect as of 1 September 2021.

VAT Exemptions on Imports of Strategic Taxable Goods and Supplies of Flats