Analysis of Input Tax Credit Relaxation Policy: Implementation of Minister of Finance Regulation Number 18/PMK.03/2021

Introduction

The Minister of Finance Regulation Number 18/PMK.03/2021 (PMK 18/2021) has introduced an input tax credit relaxation policy, aimed at balancing the aspects of taxpayers' rights and obligations in the context of confirmation as a Taxable Entrepreneur (PKP). This study will analyze the implications and implementation mechanisms of the policy.

Policy Background

Prior to the enactment of PMK 18/2021, there was an asymmetry between retroactive obligations and taxpayers' rights regarding PKP confirmation. Taxpayers were subject to sanctions for late confirmation but could not credit input tax before confirmation. This new policy aims to address this imbalance.

PKP Confirmation Mechanism

Based on the Minister of Finance Regulation Number 197/PMK.03/2013, entrepreneurs with Value Added Tax (VAT) taxable supplies reaching IDR 4.8 billion are required to be confirmed as PKP. The reporting deadline is the end of the following month after reaching this threshold. Confirmation can be done independently or through official determination by the Director General of Taxes.

Relaxation Policy Implementation

PMK 18/2021 Article 65 paragraph (1) stipulates that input tax before PKP confirmation can be credited at 80% of the output tax that should have been collected. The creditable period is from when the taxpayer should have been confirmed until the actual confirmation date.

Case Study: Policy Application

To illustrate the implementation of this policy, we can analyze the case of PT XYZ:

1. Background:
   - 2021 gross turnover: IDR 4,500,000,000 (not yet required to be PKP)
   - Reached threshold of IDR 4,800,000,000 on May 7, 2022
   - PKP confirmation deadline: June 30, 2022
   - Actual confirmation: October 19, 2022

2. Audit results (June 2023):
   - 2022 gross turnover: IDR 10,000,000,000
   - Post-confirmation supplies (October 19 - December 31, 2022): IDR 1,700,000,000
   - Supplies during required PKP - confirmation period (June 30 - October 18, 2022): IDR 2,500,000,000

3. Calculation analysis:
   - Output Tax that should have been collected: IDR 2,500,000,000 x 11% = IDR 275,000,000
   - Input Tax that can be credited: IDR 275,000,000 x 80% = IDR 220,000,000
   - VAT Underpayment: IDR 275,000,000 – IDR 220,000,000 = IDR 55,000,000

Policy Implications

The implementation of this relaxation policy results in a significant reduction in the amount of VAT Underpayment, from a potential IDR 275,000,000 to IDR 55,000,000. Consequently, the burden of sanctions that must be borne by taxpayers also experiences a substantial reduction.

Conclusion

The input tax credit relaxation policy through PMK 18/2021 represents the government's effort to balance aspects of fiscal justice. However, the long-term effectiveness of this policy needs to be further evaluated to ensure alignment with the objectives of improving tax compliance and state revenue.