VAT and Income Tax Issued for Crypto Markets by the Indonesian Government
Cryptocurrency is a digital currency secured by cryptography and is considered secure as it is nearly impossible to counterfeit. This currency is not issued nor regulated by a central authority which makes it immune to government intervention to a certain extent. It is based on a network distributed across a large number of computers. Due to its decentralized structure, cryptocurrency allows for cheap and fast money transfers.
Crypto assets as traded commodities are considered intangible taxable goods. Trading platforms that conduct themselves through electronic systems, otherwise known as Penyelenggara Perdagangan Melalui Sistem Elektronik (PPMSE), that facilitate crypto assets are VAT collectors.
These include physical crypto asset traders registered with the Indonesian Commodity Futures Trading Regulatory Agency (BAPPEBTI) and crypto-asset electronic wallet service providers. The Indonesian government has decided to start taxing the crypto markets for any transactions and assets related in May 2022.
The taxation will also be done on other financial technology services too. The finance ministry has set the VAT on crypto-assets purchases at 0.1%. The transactions, as mentioned earlier, earnings, and capital gains will be subject to a 0.1% final income tax. This rule is effective from May 1, 2022. Trading conducted on platforms that the government does not authorize is subject to higher VAT and income tax of 0.2% each.
Tax Harmonization Law to Regulate Crypto Markets in Indonesia
The Goal of the Tax Harmonization Law
President Joko Widodo passed the Tax Harmonization Bill on October 29, 2021. Amongst others, the law regulates:
- The principles, objectives, and scope of the law
- General provisions and tax procedures
- Income tax
- Value Added Tax
- Taxpayer Voluntary Disclosure Program
- Carbon Tax
- Transitional Provisions
- Closing Provisions
The law is established to increase sustainable economic growth and support the acceleration of economic recovery. The law stipulates that it is primarily based on justice, simplicity, efficiency, legal certainty, utility, and national interest. The tax policies contained within this law provide for a higher degree of fairness and support and strengthen the MSME sector.
Alongside that, realizing a tax system with a higher level of legal certainty would also result in increased voluntary compliance of taxpayers. The passing of this law is appreciated as a comprehensive attempt that is part of the continuous reforms conducted by the Directorate General of Taxation.
The reform is undertaken by repairing administrative processes, improving human resources and organizational structure, and business processes. It is hoped that revenues can once again be optimized to achieve fiscal consolidation. The law is expected to close any regulatory gaps and facilitate the new developments in digital activities from the administrative aspect.
The Tax Mechanism on Crypto Markets
Policies regarding taxes on cryptocurrency transactions and crypto assets are poured into Minister of Finance Regulation No. 68 Year 2022 concerning Value Added Tax and Income Tax on Crypto Asset Trading Transactions, effectively starting May 1, 2022.
VAT tax is levied on crypto transactions and is collected by the platform that facilitates the trade. The amount of which is:
- 1% of the VAT rate multiplied by the transaction value of the crypto asset if the PPMSE is a physical trader of crypto assets.
- 2% of the VAT rate multiplied by the transaction value of the crypto asset if the PPMSE is not a physical trader of crypto assets.
VAT is effectively collected when:
- Crypto asset purchases make payments to PPMSE;
- Crypto assets are exchanged for other parties’ accounts; or
- There has been a transfer of crypto assets to another party’s account, even if the exchange involves goods other than crypto.
E-Wallet Changes with VAT
The imposition of taxes on financial technology services is not something new, as the services mentioned above were already subject to VAT. However, the close relationship with banking activities urged the Minister of Finance to issue a new regulation of Minister of Finance Regulation No. 69 Year 2022 concerning Income Tax and Value Added Tax on Implementation of Financial Technology.
The new rule merely imposes taxes on services that facilitate transactions, which means no direct tax levied on the value of the transactions or the transaction actors. The financial technology services subject to tax imposition include payment services, crowdfunding, investment management, online insurance, and digital financial support services.