Understanding the Imposition of VAT on Cigarettes

Mid-July, there was a new peak of Covid-19 cases in Indonesia. This makes the government implement the Enforcement of Community Activity Restrictions (PPKM) up to level 4 in various regions of Indonesia. Business activities, education, and public services must be limited or even closed. The implementation of this PPKM makes the economy which had grown to 7.07 percent in the second quarter of 2021, now has to be depressed again.

This pandemic requires the Indonesian people to start being aware of their respective health. Physical activity such as regular exercise can be one way to reduce the risk of contracting the Covid-19 virus. The habit of consuming nutritious and healthy food should also be cultivated by the community so that the body’s immune system is maximized.

An unhealthy habit that most Indonesians still have is smoking. Indonesia has the third highest number of smokers in the world, which is 65.7 million. Whereas the Ministry of Health of the Republic of Indonesia states that all types of cigarettes including conventional cigarettes, electric cigarettes, and cigarettes with heating are very dangerous for the body and threaten health.

Through the Minister of Finance Regulation (PMK) Number 198/PMK.010/21 concerning Tobacco Products Excise Tariffs, the government increased the Tobacco Excise Excise (CHT) by an average of 12.5 percent. This increases the excise revenue target in 2021 by 5.3 percent or Rp. 8.8 trillion.

The increase in CHT is a manifestation of the government’s presence in overcoming the bad effects of smoking. The government through the Fiscal Policy Agency (BKF) hopes that the increase in CHT will make cigarettes even more unaffordable and targets a 8.7 percent reduction in smokers by 2024.

In addition to CHT, in carrying out the function of regulating (regular) taxes on tobacco products, cigarettes are also subject to Value Added Tax (VAT). The basis for the imposition is regulated in PMK Number 174/PMK.03/2015 concerning Procedures for Calculation and Collection of Value Added Tax on Delivery of Tobacco Products which has been amended by PMK Number 207/PMK.010/2016.

The purpose of tobacco products includes cigarettes, cigars, leaf cigarettes, sliced ​​tobacco, and other tobacco processing products, regardless of whether or not substitute or auxiliary materials are used in their manufacture. For tobacco extracts and essences, molasses tobacco, inhaled tobacco, chewing tobacco are included in other tobacco processing products.

The imposition of Cigarette VAT is carried out once at the level of producers or importers of Tobacco Products. The basis of the tax imposition is the Retail Selling Price (HJE) of Tobacco Products for delivery of Tobacco Products or HJE of Tobacco Products for the same type and brand, which are sold to the public after deducting gross profit for the delivery of Tobacco Products which are given free of charge.

The effective VAT rate is 9.1 percent. When payable from this delivery is at the time of ordering tobacco products excise stamps or when producers and/or importers deliver tobacco products to the consignee.

Proof of VAT collection when producers and/or importers place an order for excise stamps for tobacco products using the CK-1 Document. For each submission made, a tax invoice must be issued. For Input Tax on the acquisition of Taxable Goods and/or Taxable Services in connection with the delivery of Tobacco Products made by producers and/or importers can be credited in accordance with the provisions of the taxation legislation.

What is meant by producer is an individual or legal entity that operates a tobacco product factory and fulfills the requirements as a factory entrepreneur as referred to in Law Number 39 of 2007 concerning Excise (UU Excise). Meanwhile, importers are individuals or legal entities that import excisable goods in the form of tobacco products into the Customs Area.

As regulated in Article 5 paragraph (1) of PMK 174/PMK.03/2015, it is explained that for the delivery of Tobacco Products starting from the producer and/or importer level, the distributor entrepreneur to the final consumer, VAT is collected once at the producer and/or level. importer.

So that the delivery of Tobacco Products made by distributors or distributors of Tobacco Products from small to large and/or the final consumer is not subject to VAT. Distributor Entrepreneurs who solely deliver Tobacco Products do not need to be confirmed as Taxable Entrepreneurs.

In the implementation of excise collection, there are often several products that should be subject to excise duty, but in its implementation facilities are given in the form of being exempted or not being collected excise. This exemption facility is provided for certain purposes and is regulated in laws and regulations.

As regulated in Article 2 paragraph (3) of PMK 174/PMK.03/2015, for Tobacco Products that obtain excise facilities are subject to VAT in accordance with the provisions of tax laws, so the VAT rate is 10 percent.

The basis for imposition of tax is the import value for the import of Tobacco Products by the importer or the selling price for the delivery of Tobacco Products by the Taxable Entrepreneur. Evidence of VAT collection that has been carried out is a Goods Import Notification (PIB) or tax invoice.