21 Jul Risks of Becoming a Taxable Entrepreneur in Indonesia
A Taxable Entrepreneur, hereinafter referred to as “PKP”, is a business entity officially designated by the Government of the Republic of Indonesia as a collector of Value Added Tax (VAT). Upon such designation, the PKP is legally obliged to collect VAT on the sale or delivery of taxable goods and/or services.
Pursuant to the prevailing tax regulations, effective as of 2025, the VAT rate in Indonesia is stipulated at twelve percent (12%). Notwithstanding the foregoing, for the sale or delivery of non-luxury goods and/or services, the VAT calculation shall apply an alternative Tax Base (Dasar Pengenaan Pajak or “DPP”), resulting in an effective VAT burden of eleven percent (11%).
Obligation to Register as PKP
Under the Indonesian VAT Law, a business entity is required to register as a PKP when its total gross turnover for the preceding twelve (12) months exceeds IDR 4,800,000,000.00 (four billion eight hundred million rupiah). Voluntary registration as a PKP is also permitted even if the turnover threshold has not yet been met.
Legal Obligations of PKP
Once registered and confirmed as a PKP, the business entity shall assume the following statutory obligations:
- Collect VAT from buyers or service recipients in accordance with the applicable rate.
- Remit collected VAT to the State Treasury within the prescribed time limit.
- File periodic VAT returns (SPT PPN) electronically through the Directorate General of Taxes (DGT) system monthly.
Failure to comply with any of these obligations may result in administrative and/or criminal sanctions as provided under the Indonesian Taxation Law.
Sanctions Applicable to PKP
The following penalties may be imposed for non-compliance with VAT obligations:
- Administrative interest penalty ranging from 0.55% to 2.25% per month for late remittance of VAT.
- Administrative fine of IDR 500,000 (five hundred thousand rupiah) per month for late submission of VAT returns.
- Fine of 1% (one percent) of the DPP for failure to issue a tax invoice or for issuing an incomplete or incorrect tax invoice.
- Criminal sanctions amounting to between 100% (one hundred percent) and 400% (four hundred percent) of the VAT amount involved for offenses related to VAT fraud or evasion.
Advantages and Disadvantages of PKP Status
Designation as a PKP entails both benefits and burdens, summarized as follows:
Advantages
PKP may credit input VAT, thereby avoiding VAT being treated as a cost. In contrast, Non-PKP entities are unable to claim input VAT and effectively bear VAT as an additional expense. PKP status enhances credibility in business transactions, particularly in dealings with large-scale enterprises and government institutions.
Disadvantages
PKP is required to charge VAT on sales, potentially resulting in higher prices compared to Non-PKP entities. PKP must allocate additional resources for VAT administration, including staffing and compliance costs.
Conclusion
While PKP status imposes additional administrative obligations and costs, it also provides significant advantages in terms of input VAT creditability and market credibility. Businesses are advised to engage the services of a licensed Tax Consultant to ensure compliance with VAT obligations and to avoid disruptions to business operations resulting from administrative or legal sanctions.
The Role of a Tax Consultant – PT Prime Services International
In fulfilling tax obligations, a Taxpayer may engage the services of licensed tax consultants recognized by the Directorate General of Taxes (DGT). Qualified tax consultants can provide assistance in the following areas:
- Ensuring compliance with applicable tax laws and regulations;
- Representing the Taxpayer in communicating with DGT officers;
- Preparing the necessary documentation to fulfill tax obligations;
- Assisting with technical discussions during the tax assistance;
- Minimizing the risk of administrative errors and potential penalties.