How Does the VAT Refund in Indonesia Work? 

By: Made Yogi Dwiyana Utama, employee of the Directorate General of Taxes

Vacations have become a necessity in today's era. Vacations can provide an opportunity for you to unwind from your daily routine. A study published in the Applied Research in Quality of Life Journal shows that people's happiness on vacation increases dramatically. In addition, vacations can also reduce the accumulated stress of accumulated workloads. The results of a study conducted by the U.S. Travel Association show that employees who go on vacation regularly tend to be more diligent and productive at work.

There are various kinds of vacation options that you can choose from, such as going fishing, hiking, going to the beach, or just relaxing and camping by the lake. With today's easy access and transportation, travelers have many options for vacation spots, domestically and abroad. The 2020 Readers' Choice Awards have selected 20 countries as the best tourist destinations in the world, one of which is Indonesia. Indonesia has a variety of unique characteristics that make it one of the most exciting places to visit.

As an archipelagic country, Indonesia has thousands of islands forming a beautiful archipelago. These islands have charming beaches with friendly waves. Because volcanic plates cross it, Indonesia has many volcanoes and beautiful lakes. Indonesia is also home to various types of endemic flora and fauna.

Indonesia is rich in the traditions and culture of its diverse people. not to mention the Indonesian specialties from various regions; of course, you must try them. So it is suitable if Indonesia has been named one of the best tourist destinations in the world.

Once you're satisfied with your vacation, it's only complete if you have souvenirs to bring home for friends and relatives back in your hometown. There are various iconic souvenirs, such as batik, silver jewelry, and other authentic items from Indonesia. Therefore, in addition to spending on vacation, you must also prepare a budget to buy souvenirs; sometimes, they don’t come cheap. But did you know that the Indonesian Tax Authority has been giving value-added tax (VAT) refund facilities for those kinds of goods?

Currently, Indonesia applies 11% of its VAT on the delivery of goods or services within its territory. You will be charged VAT on the souvenirs you buy. So, for example, when you buy a piece of jewelry that initially costs Rp10.000.000.00, you must pay Rp11.100.000,00 for it (including VAT). It will benefit you if you can receive back the taxes you have paid, right? Then, how does the Indonesian VAT refund system work?

VAT collection in Indonesia follows some principles, one of which is the destination principle. This destination principle states that VAT is only applied to goods and services consumed inside Indonesian territory. Basically, you will bring out the souvenirs you bought. Therefore, you can request a return of the VAT collected from buying those souvenirs. The procedure for submitting a VAT refund application is regulated in the Republic of Indonesia Ministry of Finance Regulation Number PMK-120/PMK.03/2019.

The collection system for VAT in Indonesia uses tax invoices as proofing documents. To claim a VAT refund, you need special tax invoices from certain stores. Please note that only some stores you visited could issue special tax invoices. The stores that could issue special tax invoices usually have the "Tax Refund for Tourists" logo on the front door or at the cashier's table. The store can only issue a special tax invoice if you show your passport and spend a minimum of Rp504.545,00 (including VAT). On the other hand, this special tax invoice also acts as a VAT refund application form, so you don't need to fill out any forms.

To be able to submit a VAT refund claim, you must meet several requirements. First, you are not an Indonesian citizen or a permanent resident of Indonesia who lives or is in Indonesia for no more than 60 (sixty) days from the date of arrival. Second, the purchases of souvenirs or items you’ve made and will submit for a VAT refund were made within one (1) month before departing from Indonesia. Third, the minimum cumulative amount of VAT you will claim for a refund from all special tax invoices is Rp500.000.00, or the minimum accumulation of your purchases is Rp5.045.455,00 (including VAT).

In order to prove that you are eligible for a VAT refund, you need to present your passport, boarding pass, and all special tax invoices you have received to the VAT refund officer before departing. Not only that, but you also have to show the items you carried or souvenirs that you bought and will bring out. The officer will check your documents' suitability and validity and match the carried items with your submitted special tax invoice. If the inspection of all requirements has been declared complete and appropriate, the officer will process your application, and you are entitled to receive a VAT refund.

VAT refunds can be given directly in cash or transferred to your bank account. Refunds in cash are limited to a maximum of IDR 5.000.000,00. So, if your VAT refund amount exceeds that amount, be prepared to lose the rest. But don't worry, you can choose the second option: a refund via international wire transfer. This option will require more time than the first, and you will likely receive your refund only when you arrive at your destination. However, you will receive a full refund after deducting the transfer fee. If you decide to use international wire transfers, you are also asked to provide your financial information, such as bank account numbers, account holder names, and other financial information needed. So, make your choice wisely.

Normally, you must submit a VAT Refund application directly at the VAT Refund Counter located at certain international airports, but due to the pandemic, the submission has been diverted. So now you need to email your VAT refund claim application. Apparently, at this time, you can only get your VAT refund transferred to your bank account. You can check this link for the selected international airports and their email addresses. https://pajak.go.id/en/pengumuman/temporary-vat-refund-electronic-service. 

There are a few tips for claiming a VAT refund. Before you prepare for your departure, please make sure you can claim your VAT refund. You need to check the dates of your arrival and departure. It is also a good idea to gather all special tax invoices you have received and ensure the sum of VAT on every tax invoice has already exceeded the minimum threshold. It will make you more ready, and your VAT refund claim will go smoothly.

If you have planned to visit Indonesia, consider using this facility. It will make goods and items purchased as gifts less expensive than they should be. If you often come here, you can also suggest your favorite store if they still need to join this scheme and benefit from this tax facility. Enjoy your visit!

*) This article is the author's personal opinion and does not reflect the view of the institution where the author works.