When the Directorate General of Taxes (DGT) rejects input VAT — the VAT a company has paid on its business purchases — the company must determine whether the error can be corrected or whether it needs to challenge the DGT’s decision.
When Can Input VAT Be Credited in Indonesia?
Input VAT that is not claimed in the same tax period can generally still be claimed within the next three tax periods, provided it has not already been recorded as an expense. The DGT has confirmed that this rule continues under the Coretax system.
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If only some of the company’s activities qualify for input VAT credits, it may only claim the portion of VAT connected to those activities.
Why Are Input VAT Credits Rejected?
Indonesian tax invoices must include details about the seller, buyer, goods or services, transaction value, VAT charged, and invoice number. Missing or incorrect information can affect whether the input VAT can be claimed.
The DGT may also reject the credit if it was claimed too late or relates to business activities that do not qualify for an input VAT credit.
During an audit, the DGT may also question whether the transaction took place as recorded. The company may then need to show that the goods were delivered or the services were provided. These issues can become more complex in cross-border VAT transactions.
What Does a Rejected Input VAT Credit Cost the Company?
Suppose an Indonesian company reports IDR 6 billion (USD 338,400) of output VAT and IDR 5 billion (USD 282,000) of input VAT that it can claim. The company would therefore owe IDR 1 billion (USD 56,400) in VAT.
If an audit rejects IDR 1 billion (USD 56,400) of the input VAT, the amount the company can claim falls to IDR 4 billion (USD 225,600). Its VAT bill therefore increases from IDR 1 billion (USD 56,400) to IDR 2 billion (USD 112,800), before any penalties that may apply.
Input VAT that cannot be claimed may instead become part of the cost of the goods or services. It may also be deductible for corporate income tax if the VAT was paid and the related expense qualifies as a business expense.
How Can the Company Challenge the Rejection?
A correction may be possible if there is an error in the amount of input VAT claimed, and the company and the DGT agree that the VAT itself can be credited. If the DGT believes the company is not entitled to the credit, the company may need to challenge the tax assessment.
The company can file an objection against the assessment with the DGT. This generally must be done within three months from the date the assessment is sent. The company must provide its own calculation and explain why it disagrees with the assessment. The deadline may be extended if circumstances outside the company’s control prevented it from filing on time.
Challenge a rejected VAT credit with MAP Resources Indonesia. Email info@mapresourcesindonesia.com
Before filing the objection, the company must pay at least the amount it agreed to during the final audit discussion. Payment of the disputed amount can generally be delayed until one month after the DGT issues its decision on the objection.
If the objection is rejected, the company can appeal to the Tax Court. The appeal generally must be filed in Indonesian within three months after the company receives the DGT’s decision and must explain the grounds for the appeal.
What Evidence Can Support the Input VAT Credit?
For a dispute over the tax invoice, the company may need to show that the invoice contains the required information and that any errors can be corrected.
The DGT may also look beyond the invoice and question the transaction behind it. Contracts, purchase orders, payment records, accounting records, and delivery documents can help show what was purchased and whether the transaction took place as recorded. For goods, customs and inventory records may also be relevant. For services, the company may use reports, completed work, correspondence, or acceptance records.
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Even where the transaction is supported, the DGT may question whether the purchase qualifies for an input VAT credit. The company must then show how the purchase relates to qualifying business activities. Correcting the invoice alone will not resolve this type of dispute.
The timing of this evidence also matters. Documents or information that should have been provided during the tax audit generally cannot be introduced later during the objection process, although there are exceptions.
Resolve an Input VAT Dispute with MAP Resources Indonesia
MAP Resources Indonesia assists foreign investors with rejected input VAT credits, tax objections, and disputes with the Indonesian tax authority. Contact us today at info@mapresourcesindonesia.com.
