the company there is a company engaged in the field of room rental. Our company purchased land to build a building that will be rented out as a space for offices. When purchasing land, our company is subject to VAT. Can the VAT be credited? According to DGT Circular No. SE-28/PJ/2021, is it true that our company cannot credit input VAT?
Land transfer is the delivery of Taxable Goods (BKP) as clarified in the Circular Letter of the Director General of Taxes No. SE-28/PJ/2021 (“SE-28/2021”). The delivery of BKP within the customs area is an object of VAT as stated in Article 4 paragraph (1) letter a of Law no. 8 of 1983 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods s.t.d.t.d Law no. 11 of 2020 concerning Job Creation (“VAT Law”).
“Value Added Tax is imposed on:
a. delivery of Taxable Goods in the Customs Area by Entrepreneurs;
Input Tax on land delivery can basically be credited with the Output Tax, because the delivery of land is an object of VAT. Part E number 1 letter b SE-28/2021 states that:
“Input Tax on land acquisition can be credited in the event that it does not conflict with the provisions as referred to in Article 9 of the VAT Law and its explanation.”
(Part E number 1 letter b SE-28/2021)
From this elaboration, it is known that the Input Tax on land acquisition can be credited with the Output Tax in the same Tax Period as long as it complies with the provisions of Article 9 of the VAT Law. However, Article 9 paragraph (8) of the VAT Law stipulates that input tax crediting cannot be applied to expenditures in the form of:
acquisition of Taxable Goods or Taxable Services that do not have a direct relationship with business activities; acquisition and maintenance of motorized vehicles in the form of sedans and station wagons, unless they are merchandise or leased; acquisition of Taxable Goods or Taxable Services whose Tax Invoices do not meet the provisions as referred to in Article 13 paragraph (5) or paragraph (9) or does not include the name, address, and Taxpayer Identification Number of the buyer of the Taxable Goods or the recipient of the Taxable Services; utilization of Intangible Taxable Goods or utilization of Taxable Services from outside the Customs Area whose Tax Invoice does not meet the provisions as referred to in Article 13 paragraph (6). It is stated that Input Tax cannot be credited, one of which is the submission of BKP which does not have a direct relationship with business activities. It is clarified in the Elucidation of Article 9 paragraph (8), expenditures that are not related to business activities, namely: “Expenditures directly related to business activities are expenditures for production, distribution, marketing, and management activities. This provision applies to all business fields. In order to be credited, the Input Tax must also meet the requirements that the expenditure is related to the delivery of which Value Added Tax is payable. Therefore, even though an expenditure has met the requirements for a direct relationship with business activities, it is still possible that the Input Tax cannot be credited, i.e. if the expenditure in question has nothing to do with the delivery for which Value Added Tax is payable.” (Explanation of Article 9 paragraph (8) ) It is known that the company is a company that rents office space. This office money rental service is a type of rental service for immovable property. This immovable property rental service is not included in the negative list as stated in Article 4A paragraph (3) of the VAT Law so that the office space rental service is subject to VAT. As long as the room rental service is not a room rental in the lodging sector, the room rental service is payable. PPN. So basically, as long as the land acquisition carried out by this company is related to business activities for which VAT is payable, the Input Tax can be credited. Now, let’s see if the company carries out business activities that are subject to VAT? Thus, the Input Tax on the acquisition of land used to build office space can be credited. This is because the expenditure for the acquisition of land is related to business activities payable VAT, namely space rental services for offices.