How to Calculate VAT: Rates, Formulas, and Regulations

One of the primary sources of state revenue is taxes. The funds collected are used to finance various development programs and public services. As part of tax obligations, individuals and businesses play a role in paying and managing taxes properly.

In general, taxes are divided into two types: direct taxes and indirect taxes.

• Direct taxes are imposed on taxpayers, such as Income Tax (PPh), which is paid by individuals or businesses.
• Indirect taxes apply to transactions of goods and services, such as Value Added Tax (VAT), which is charged to consumers when purchasing certain goods or services.

One of the most common types of tax is VAT. This tax is applied to almost all goods and services sold, although there are some exceptions. It’s essential to understand how to calculate VAT to determine the tax amount you need to pay.

What Is VAT?

VAT, or Value Added Tax, is a tax imposed at each stage of the production and distribution of goods or services. It is ultimately borne by the end consumer, while sellers act as intermediaries who collect and remit the tax to the government.

VAT Regulations

VAT in Indonesia is regulated under Law No. 42 of 2009 on Value Added Tax and Luxury Goods Sales Tax (PPnBM), which was later updated by the Tax Regulation Harmonization Law (UU HPP) in 2021. Changes in VAT rates over the years are part of the government's efforts to optimize tax revenues.

List of Goods and Services Subject to VAT

Before learning how to calculate VAT, it’s important to know which goods and services are subject to it. While not all goods and services are taxed, most business transactions fall under taxable categories.

Goods and Services Subject to 11% VAT

• Certain staple foods – Some essential goods still incur VAT, especially those not listed as tax-exempt.
• Standard electronic products – Items such as televisions, refrigerators, and washing machines are subject to 11% VAT.
• Clothing and textiles – Most fashion products from various brands are taxed at the standard rate.
• Consultation and professional services – Legal, accounting, and business consulting services are included.
• Public transportation tickets – VAT applies to most transport services, such as airline and train tickets.

Goods and Services Subject to 12% VAT

• Luxury cars and high-end motor vehicles – Vehicles above a certain price range will be taxed at 12%.
• Gold and diamond jewelry – Luxury items like gold jewelry and diamonds are subject to a higher tax rate.
• High-value properties – Expensive houses or apartments fall into this category.
• Premium electronic products – High-end gadgets like flagship smartphones and advanced technology devices.
• Exclusive fashion products – Luxury brand bags and designer clothing.

VAT Calculation Rates in Indonesia

Currently, Indonesia applies an 11% VAT rate, as stipulated in the UU HPP. However, the government has set a plan to increase the VAT rate to 12% starting January 1, 2025, for certain categories.

This increase aims to boost state revenue, which will be allocated for infrastructure development, social programs, and economic stability.

How to Calculate 11% and 12% VAT

Even after understanding VAT and its regulations, many people may still be uncertain about how to calculate VAT. Below are the formulas and examples for non-luxury and luxury goods.

1. Formula to Calculate 11% VAT for Non-Luxury Goods

Most goods and services in Indonesia are subject to 11% VAT.

Formula:
VAT = Price of Goods × 11%

Example: A bag of rice costs Rp300,000 and is subject to 11% VAT.

VAT = Rp300,000 × 11% = Rp33,000
Total price after VAT = Rp333,000

2. Formula to Calculate 12% VAT for Luxury Goods

Starting January 1, 2025, a 12% VAT will apply to certain high-value goods. Luxury goods may also be subject to Luxury Goods Sales Tax (PPnBM) in addition to VAT.

Formula:
VAT = Price of Goods × 12%

Example: A luxury watch costs Rp50,000,000 and is subject to 12% VAT.

VAT = Rp50,000,000 × 12% = Rp6,000,000
Total price after VAT = Rp56,000,000

The Importance of Proper VAT Documentation

For businesses, maintaining accurate transaction records is essential to ensure correct VAT calculations and compliance with tax regulations. Invoices and transaction receipts must be legally valid to be recognized by tax authorities.

Using digital signatures, such as those offered by VIDA Sign, helps businesses manage tax documents securely. A digital signature ensures that tax documents remain legally valid, tamper-proof, and easily accessible for digital record-keeping.

With a secure, easy, and legally recognized digital signature solution, tax administration becomes more efficient and protected from fraud.