Indonesia Expands Boundary of 0% Tax on Services to Boost Trade Balance
Directorate general of state wealth at the finance ministry, announced an additional capital injection for three state firms with total amount Rp8.57 trillion (US$607.80 million) in this year- Photo by Finance Ministry Office.

JAKARTA (TheInsiderStories) – The government through Ministry of Finance has expanded the scope of imposition of zero percent value-added tax on service export goods to boost the performance of the modern service sector and increasing the competitiveness of export services to improve the trade balance, said a senior minister on Tuesday (04/02).

According to Finance Minister Sri Mulyani Indrawati, the activity which is the export of taxable services is the submission of taxable services produced within Indonesian territory by taxable entrepreneurs to be used outside of Indonesia by recipients of exports of taxable services.

“Thus taxable services produced and utilized outside the territory of Indonesia are not subject to value added tax because they do not include service exports,” she said in a written statement.

She stated, this policy has been determined through the Regulation Number 32/PMK.010/2019 which came into force on March 29, 2019.

Previously, in November 2018, the government also launched a regulation on the expansion of tax facilities for the export of zero percent services for the same type of services.

The former World Bank staff explained, service exports that can receive zero percent tax facilities must fulfill two formal requirements, namely: first, based on an agreement or written agreement, and secondly, there is a payment accompanied by a valid proof of payment from the recipient of export to taxable entrepreneurs export.

She asserted, the agreement or written agreement must clearly state the type of service, details of activities produced within the territory of Indonesia to be utilized outside the territory of Indonesia by the recipient of the export; and the value of service delivery.

“Anti-avoidance rule also involves the inclusion of the value of service delivery,” she said.

Meanwhile, in the event that the above formal requirements are not met, the delivery of services is deemed to occur within the territory of Indonesia and is taxed at a rate of 10 percent.

This zero percent tax is imposed for the export of taxable services generated by taxable entrepreneurs in the country, then utilized outside the territory of Indonesia by the recipient of export taxable services.

She explained, in addition to maintaining the types of services that already exist in the previous provisions, this rule also includes a number of new types of services.

The types of services subject to zero percent tariffs are cloning services, repair and maintenance services, transportation management services (freight forwarding) related to goods for export purposes, construction consulting services and information and technology services.

In addition, there are research and development services and rental equipment for transportation in the form of aircraft rentals and/or ships for international flights or shipping activities.

In the field of consultancy services including, among others: business and management consulting services, legal consultancy services, architectural and interior design consulting services, human resource consulting services, engineering services, marketing services, accounting or bookkeeping services, financial report audit services and tax services.

While for trade services in the form of services to find sellers of goods in the customs area for export purposes, they are also subject to zero percent tariff. Likewise with interconnection services, satellite operations and/or communication/data connectivity.

In addition to extending the zero percent tariff limit, the government also provides incentives for the business world in the form of tax allowances, value added tax facilities for MSMEs players and tax incentives in the mining sector and government-borne import duties, including regional incentives such as special economic zones, regions industry, free trade zone and landfill.

Written by Daniel Deha, Email: