Taxing Self-Care: The Price We Pay for Beautiful Skin

By: Salsa Grandis Sains, a Directorate General of Taxes officer

Cosmetics have become an essential part of our daily lives. They are not only used to look better on special occasions but have also become a routine in our daily lives. Frontliners need to look beautiful with cosmetics, and actors and actresses are expected to look flawless in every performance. The cosmetics industry is highly competitive, with many popular brands gaining prominence. Cosmetics are not just a need for women but for everyone, regardless of age.

However, have you ever thought about the taxes involved in using cosmetics? Let's explore!

Tax is an obligation that every citizen must fulfill to support the development and administration of the country. While paying taxes is often seen as a burden, we can view the use of cosmetics as a fun way to contribute to societal development. Cosmetics are materials applied to the outer layer of the body, such as the skin. The benefits of using cosmetics, whether it's makeup or skincare, include making the skin brighter, healthier, and cleaner, boosting confidence.

Each skincare product that is sold goes through a lengthy process before reaching consumers. What processes does it go through, and how is tax involved in each step?

Value Added Tax (VAT)
Cosmetic products are taxed when the seller has Taxable Entrepreneur status known as "Pengusaha Kena Pajak"(PKP) . This means they are subject to Value Added Tax (VAT) on the sale of Taxable Goods. This is regulated by Law No. 7 of 2021 on Tax Regulation Harmonization, which imposes an 11% VAT rate on the sale of taxable goods starting from April 1, 2022. So, when we buy skincare, we pay an 11% VAT. This VAT is part of the selling price of skincare collected by the seller and remitted to the government as state tax revenue. By buying skincare, we indirectly participate in tax payments in Indonesia.

In addition to domestic VAT, if the cosmetics industry exports products, it incurs an export tax with a 0% VAT rate. This is done to support foreign exchange earnings and promote Indonesian products abroad.

Income Tax
From the income tax perspective known as Pajak Penghasilan (PPh), the cosmetics industry is subject to Tax Article 21 for employees working within the company. Tax Article 23 applies to payments for royalties or expert services used in research and development. Additionally, Tax Article 22 is imposed on the importation of certain goods, including cosmetic ingredients. Tax Article 22 for imports is collected by Customs in conjunction with import duties and import VAT. Tax Article 26 is levied if the taxpayer rents equipment or pays dividends.

In addition to the above income taxes, there is also Final Income Tax applied when a cosmetic business transacts with a final tax object under 4 paragraph 2. This includes paying rent for land and buildings, receiving interest on savings, or if the cosmetic business has a gross turnover of less than IDR 4.8 billion per year and chooses to use Government Regulation No. 23 of 2018, with a tax rate of 0.5%.

Local Taxes and Regional Levies
These taxes are paid by cosmetics entrepreneurs to the local government where the business is located. The rate for local taxes and regional levies varies according to the regulations of the local government.

Taxing the cosmetics industry is expected to boost state revenue. Considering the high demand for cosmetic products, using cosmetics is not just for beauty but also as a way to contribute to tax payments. While paying taxes is a duty, looking at it positively reveals that tax payments can be a meaningful contribution to national development. So, every time we feel the benefits of skincare or makeup product, remember that we are also actively participating in the country's development.

Using cosmetic is not just for nurturing and beautifying the skin but can also make a real contribution to tax payments in Indonesia. By supporting local cosmetic industries, we contribute to building the economy and contributing to state tax revenue.

*) This article represents the author's personal views and does not represent the stance of the institution. 

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