Joint Liability Value Added Tax

Value Added Tax (VAT) is one of the indirect taxes according to its collecting system

About The Company

The company business engage in agricultural commodities in Cocoa. It also helps improving the economic and social welfare of farming communities in Indonesia.

Project Overview

Value Added Tax (VAT) is one of the indirect taxes according to its collecting system considering it is collected by an intermediary (seller/service provider) who bears responsibility to deposit it into State Account from the person who bears the ultimate economic burden of the tax (purchaser/service recipient).

When transaction occurs, seller/service provider will issue the tax invoice which should be paid by the purchaser/service recipient as the VAT proof of payment. Later on, the seller/service provider will use it to credit its tax income. Seller/service provider also bears responsibility to deposit collected VAT into State Account. In short, the party who bears responsibility to pay the VAT and the party who bears responsibility to deposit collected VAT into State Account conducted by different party.

Regarding such condition, the VAT may expose to the risk of tax crime offense. In this contraint, who will be imposed to the offense? Seller/service provider or purchaser/service recipient?

Article 16F Law Of The Republic Of Indonesia Number 42 Year 2009 Regarding The Third Amendment To Law Number 8 Year 1983 Regarding Value Added Tax On Goods And Services And Sales Tax On Luxury Goods stipulate that “Purchaser of Taxable Goods or recipient of Taxable Services shall be responsible jointly for tax payment, if he cannot show proof that tax has been paid.”

In accordance with the principle, burden of tax payment for Value Added Tax on Goods and Services and Sales Tax on Luxury Goods shall be on purchaser or consumer of goods or recipient of services. Elucidation on the above Law explained that it is only appropriate if the purchaser or consumer of goods and recipient of services are responsible jointly to pay tax payable if apparently that the tax payable cannot be collected to seller or provider of services, and the purchaser or recipient of services cannot show any proof of tax payment to seller or provider of services.

Also explained in above Law, it is guaranteed that purchaser/service recipient would not be imposed in any offense regarding VAT should he/she could show the proof of tax payment to seller or provider of services, in example using cash flow ledger where the VAT payment is stated.

However, the other concern arises when the seller/service provider is not issuing any tax invoice as the proof, whereas there is no regulative procedure known of which purchaser/service recipient able to self-depositing VAT into State Account.

Needed to know, Taxable Entrepreneur (entrepreneur that conduct delivering taxable goods and/or delivering taxable services as in accordance with Law Of The Republic Of Indonesia Number 42 Year 2009) is required to issue tax invoice. Moreover, entrepreneurs must report their business to be stipulated as Taxable Entrepreneur, if up to a month in accounting year the amount of gross stock value and/or gross revenues exceeds IDR 4.800.000.000,00 (four billion eight hundred million rupiah).

As joint liability for purchaser/service recipient has stipulated in VAT Law, purchaser/service recipient needs to be cautious in transactioning every purchase. If the seller/service provider is not issuing the tax invoice, it means the transaction is at no charge of VAT.

In recent case, the seller/service provider purchases from one purchaser/service recipient where there are no VAT charged. However, after one year the purchase record shown that the amount of purchased goods from this seller has exceeded IDR 4.800.000.000. In accordance with Law stated above this seller/service provider should have reported their business to be stipulated as Taxable Entrepreneur and holds the responsibility on issuing the tax invoice for their transactions.

Based on the above explanation, since there is no regulative procedure known of which purchaser/service recipient able to self-depositing VAT into State Account, therefore, the event that the tax invoice is not issued, the purchaser/service recipient holds VAT joint liability of the transactions.

In summary, purchaser/service recipient must be cautious when having transaction from the seller/service provider who do not issue tax invoice. Purchaser/service recipient must confirm  that the seller/service provider has not yet able to be stipulated as Taxable Entrepreneur in which holds no responsibility to charge and report VAT. Therefore, purchaser/service recipient will hinder in becoming culpable of tax payable joint liabilty. (RA)