Centre for Administrative Science
Faculty of Social and Political Science
University of Indonesia
Value Added Tax (VAT) Policy for
Small Scale Entrepreneur
(Indonesian VAT Policy)
South- South Sharing of Successful Tax Practices
1. Background
 Indonesia adopted a VAT System in 1983 when tax reform was
implemented including the a shift from a Sales Tax System to a Value
Added Tax System.
 Indonesia VAT Law as latest amended by Law No. 42 in 2009. Based
on article 4 (1) of VAT Law, “VAT shall be imposed on:
a.
b.
c.
d.
e.
f.
g.
h.
Delivery of taxable goods within customs area conducted by
enterpreneur
Import of taxable goods
Delivery of taxable services within customs area conducted by
enterpreneur
Utilization of intangiable taxable goods from outside customs area within
customs area
Utilization of taxable services from outside customs area within customs
area
Export of tangiable taxable goods by taxable enterpreneur
Export of intangiale taxable goods by taxable enterpreneur
Export of taxable services by taxable enterpreneur
 The consequence of VAT implementation: an entrepreneur who
conducted delivery of taxable goods (intangiable taxable goods or
tangiable taxable goods) and taxable services must register its
business to be confirmed as Taxable Enterpreneur as regulated under
Article 3A of VAT.
 A Taxable Enterpreneur is allowed to credit input tax against output
tax. Article 9 VAT Law stated that: “ input tax in a tax period may be
credited with output tax in the same tax period”
 For the administrative purpose, therefore Tax Invoice must be issued
by taxable entrepreneur as media for credit mechanism for each:
a. Delivery of taxable goods
b. Delivery of taxable services
c. Export of intangiable taxable goods
d. Export of taxable services
 Taxable Enterpreneur are compulsory to collect, deposit and report
Value Added Tax (VAT) and Sales Tax on Luxury Goods (STLG).
 For Small Scale Entrepreneur are allowed to choose whether as
taxable supplies or not. Whereas, Small Scale Enterpreneur who
choose to be confirmed as Taxable Enterpreneur are compulsory to
carry out provision for Taxable Enterprises.
 Indeed, Small Scale Entrepreneurs who do not register as taxable
enterpreneur will be exempted from taxable enterpreneur
responsibilities.
 The aim of Indonesian government concessing small scale
entrepreneur to be exempted from the responsibilities as taxable
entrepreneur do is to support the development of small scale
entrepreneur business activities.
 Small Scale Entrepreneur is the entrepreneur whose its total omzet
from deliver taxable goods or supply taxable services is up to certain
amount of money for a fiscal year. The threshold for omzet shall be
stipulated by regulation of Ministry of Finance.

The compulsory of Small Scale Entrepreneur as is Taxable
Entrepreneur still debatable by VAT Expert. According to Schenk and
Oldman:
1. Small business can either be exempt or subject to taxation
under special sceme
2. The government may tax small business but may allow them to
retain a percentage of the tax collected to compensate them for
their substantially higher complience cost
3. Rather than requiring small business to account for taxes under
a variation of the accrual method typically used to calculate VAT
liability, they can be allowed to employ the cash method
4. One need not assign to the invoice the same critical weight that
it has for larger taxpayers
5. Instead of requiring frequent periodic reporting of taxes, small
business can be permitted to report their taxes annually, with
periodic payment of estimated taxes.
 In conclusion, treatment for Small Scale Entrepreneurs should be
different with Taxable Entrepreneur. Even if the small scale
entrepreneur chooses to register as Taxable Entrepreneur, they
should be given concession, as Tait stated:
1. Intended to have a large turn over but not yet reached
2. Incur large expenditure in one year
3. Expecting the income in the next year
4. Carrying out business activities at a level that does not reach
the registration limit but that do not wish this information to be
known by customers
5. To avoid any competitive disadvantage compared with other
operators who are required to be registered.
 The category of entrepreneur shall be determined by minimum level
or threshold of business activity. Then, the indicator of business
activity shall be total turn over of taxable goods and services in
particular period.
 However, there are many developing countries set the limit for that
threshold less than Fiscal Affair Department International Monetary
Fund (FAD IMF) suggested.
Figure 1
Registration Thresholds
Country
National Currency
USD (Approx)
Australia
AUD 75,000
AUS 47,000
Cambodia
a.
b.
c.
a)
b)
c)
China
None
India
Varies from state to state
Indonesia
IDR 600 million
Japan
None
Malaysia
Not yet decided
Laos
Kip
USD 49,000
New Zealand
NZD 40,000
USD 19,000
Philippines
PHP 1,5 million
USD 30,000
Singapore
None
Thaiwan
None
Thailand
Bath 1,8 million
Riel 125 million
Riel 60 million
Riel 30 million
USD 30,000
USD 14,000
USD 7,000
USD 49,000
Source: PricewaterhouseCoopers, A Guide to VAT/GST in Asia Pacific 2009 kurs as published by PwC
2. Implementation in Indonesia
In the beginning of VAT implementation (1983), government exempted
levying VAT from Small Scale Entrepreneur. Then the policy changed over
periods, level of threshold for period of:
Policy Periode
Policy (Approx)
1 April 1985 – 31
March 1989
a. Entrepreneur delivered taxable goods/taxable
services no more than IDR 60,000,000 in a year
b. The beginning capital to set up business no
more than IDR 10,000,000 in a year
1 April 1989 – 31
December 1991
a. Entrepreneur delivered taxable goods no more
than IDR 60,000,000 in a year
b. Entrepreneur supplied taxable services no more
than IDR 30,000,000 in a year
c. Entrepreneur delivered both taxable goods/ and
taxable services:
Policy Periode
Policy
• IDR 80,000,000 in a year if delivery
of taxable goods more than 50% from
total omzet
• IDR 30,000,000 in a year if supply of
taxable services more than 50% from
total omzet
1 January 1992 – 31 December 1994
a. Enterpreneur delivered taxable
goods no more than IDR
120,000,000 in a year
b. Enterpreneur supplied taxable
services no more than IDR
60,000,000 in a year
c. Enterpreneur delivered both
taxable goods/ and taxable
services:
Policy Periode
Policy
• IDR 120,000,000 in a year if delivery
of taxable goods more than 50% from
total omzet
• USD 29,350 in a year if supply of
taxable services more than 50% from
total omzet
1 January 1995 – 31 December 2000
a. Entrepreneur delivered taxable
goods no more than IDR
240,000,000 in a year
b. Entrepreneur supplied taxable
services no more than IDR
120,000,000 in a year
c. Entrepreneur delivered both
taxable goods/ and taxable
services:
Policy Periode
Policy
• IDR 240,000,000 in a year if delivery
of taxable goods more than 50% from
total omzet
• IDR 120,000,000 in a year if supply
of taxable services more than 50%
from total omzet
1 January 2001 – 31 December 2003
a. Entrepreneur delivered taxable
goods no more than IDR
360.000.000 in a year
b. Entrepreneur supplied taxable
services no more than IDR
180.000.000 in a year
c. Entrepreneur delivered both
taxable goods/ and taxable
services:
Policy Periode
Policy
• IDR 360,000,000 in a year if delivery
of taxable goods more than 50% from
total omzet
• IDR 180,000,000 in a year if supply
of taxable services more than 50%
from total omzet
1 January 2004 – Now
•
Since 2004, government
stipulated that business activity
threshold different between
delivery of taxable goods and
supplied of taxable services
should not be applied. Thus, the
minimum threshold for both would
be IDR 600,000,000
3. Conclusion
 To promote the development of Small Scale Entrepreneur, the
government should pay more attention to this type of business. It
is suggested that government should concess facility for Small
Scale Entrepreneur such as exemption from registration
compulsory or several sugesstion as followed:
a. To extent the limit of business threshold; or
b. To promote enforcement of law for small scale entrepreneur
who gain omzet more than threshold, if the limit of threshold
will not be redetermined.