The government has issued provisions related to the VAT collection and crediting on land. The policy is outlined under Circular No. SE-28/PJ/2021 concerning Value Added Tax on Supplies of Land and Input VAT Crediting on Acquisition of Land (SE-28/2021). The circular was promulgated on 19 March 2021.
This regulation has been issued in the framework of standardization and provides guidelines for the collection of VAT on supplies of land and the crediting of input VAT on the acquisition of land. This circular asserts that land constitutes taxable goods (Barang Kena Pajak/BKP) that may be subject to VAT. Land may be subject to VAT in the event that these four conditions are satisfied cumulatively.
First, the supply is performed by an entrepreneur. Second, it is included in the definition of supplies as referred to in Article 1A of VAT Law. Third, the supply is performed within the customs area. Fourth, the supply is performed in the framework of the entrepreneur’s business or work.
The definition of entrepreneurs in the first point includes entrepreneurs who have been confirmed as Taxable Persons for VAT Purposes (Pengusaha Kena Pajak/PKP) as well as entrepreneurs who should be but have yet to be confirmed as PKP. In this context, the entrepreneurs have identifiable businesses or work and there exist activities that indicate business activities, among others, having inventory in the form of land and/or buildings for sale.
Entrepreneurs that own land and/or buildings are required to report their businesses to be confirmed as PKP no later than the end of the following month after the month when the amount of gross turnover and/or gross revenues exceeds the threshold of a small business entity.
Moreover, supplies of land constituting an asset that according to its original purpose, is not for sale, are also subject to VAT insofar as three conditions are met cumulatively. First, the supply is performed by PKP. Second, the supplied land, which according to the original purpose is not for sale, unless the input VAT on the acquisition cannot be credited because there is no direct relationship with the business. Third, included in the definition of supplies of taxable goods as referred to in Article 1 A of VAT Law.
The transfer of BKP in the form of land whose original purpose is not for sale, in the framework of mergers, split-ups, spin-offs, split-offs, and taking over of a business, as well as the transfer of BKP for the purpose of capital deposit in lieu of shares may also be subject to VAT. In this context, the land is subject to VAT in the event that the party receiving the transfer is an entrepreneur who has not or is not confirmed as a PKP.
In the event that the land is transferred to an entrepreneur who has been confirmed as a PKP, the transfer cannot be considered as a supply of BKP which is subject to VAT. In the event that the transferred BKP constitute land and buildings, VAT is imposed on the supply of BKP in the form of land and buildings. For BKP in the form of land, the tax base shall be the selling price of the land. The tax base for BKP in the form of land and buildings, on the other hand, is the price of the land and buildings.
In terms of the VAT collection on land and/or buildings, there are two provisions concerning where VAT is payable. First, PKP that has a land and/or building transfer business and is registered in the administrative area of the Regional Large Tax Office, Jakarta Special Regional Tax Office, and Medium Tax Office, VAT becomes payable at the domicile and/or place of business. Next, the administration is carried out in KPP BKM if the business is located in the administrative area of KPP BKM or in a Tax Office of which the work area includes the domicile and/or place of business.
Second, supplies of land and/or buildings by a PKP with a land and/or building transfer business and is not registered with KPP BKM, VAT becomes payable at the domicile and/or place of business. In this regard, the administration is carried out in the KPP whose work area includes the domicile and/or place of business activities where the land is transferred.
Further, supplies of land by PKP to government agencies in the framework of land procurement may also be subject to VAT. The VAT payable is collected by the PKP that supplies the land to a government agency and is not collected by the government agency.
Prior to the enactment of Law No. 11 of 2020 on Job Creation (Job Creation Law), supplies of land and/or buildings could not be credited. Following the enactment of Job Creation Law, however, supplies of land as described above may be credited. PKP may credit input VAT on land acquisition either as capital goods or non-capital goods, regardless of whether the PKP has or has not carried out the supply.