Every September 23, Indonesia commemorates National Maritime Day to commemorate the establishment of the First Maritime National Conference in the era of President Soekarno, which was later confirmed through Presidential Decree Number 249 of 1964. This momentum is relevant to review the tax treatment that applies to the shipping sector, considering Indonesia’s position as an archipelagic country that makes this industry the main support for inter-island connectivity as well as national logistics flows. The government provides a special tax scheme for shipping business actors, both in terms of Income Tax and Value Added Tax, with the aim of providing legal certainty while reducing operational costs in sectors that have quite different business characteristics from the service sector in general.
Income Tax for Shipping Services
The Income Tax for shipping services is grounded in Article 15 of Indonesian Income Tax Law (Law No. 7 of 1983 on Income Tax as amended by Law No. 6 of 2023) (“Article 15 Income Tax”). The provision authorizes the Minister of Finance to set special norms for calculating net income for certain taxpayers, including shipping companies, where their actual net income is difficult to determine on a consistent basis. For shipping companies, this difficulty stems from revenue patterns that depend heavily on shipping routes, cargo types, and fluctuating vessel operating costs, factors that cannot always be reconstructed in the same way from one taxpayer to another.
Exercising this authority, the Minister of Finance issued Decree No. 416/KMK.04/1996 (“KMK 416/1996”), which subjects domestic shipping companies to final Article 15 Income Tax.
Under this scheme, net income is deemed to be 4% of gross turnover, which covers all remuneration received for transporting people and/or goods, whether between domestic ports or from Indonesian ports to ports abroad. KMK 416/1996 sets the resulting final income tax at 1.2% of gross turnover, which the shipping company must self-pay every month. As the tax is final, income from shipping services is excluded from the calculation of income tax payable in the Annual Tax Return, making reporting considerably simpler than under the regular calculation scheme.
Value Added Tax for Shipping Services
Public transportation services on water obtain facilities exempt from Value Added Tax (VAT) based on Article 18 letter b of Indonesian Value Added Tax Law (Law No.8 of 1983 on Value Added Tax as amended by Law No. 6 of 2023) juncto Article 20 of Government Regulation Number 49 of 2022 (PP 49/2022) The scope includes public transportation services at sea, on rivers and lakes, as well as crossing services, and these facilities remain valid even though these services are handed over using transportation documents such as tickets and bills of lading. One of the simplifications provided through PP 49/2022is the abolition of the obligation to submit a free certificate to use this facility, different from the mechanism that applied in the previous regime.
A different scheme applies to the delivery of ships as a certain means of transportation along with related taxable services, such as ship maintenance and maintenance services, which obtain VAT facilities are not collected. The difference between exempt and non-collected schemes is not just a term, but has direct implications for the treatment of input tax. For the VAT exemption facility, input tax related to the acquisition of taxable goods or services cannot be credited as stipulated in Article 16B of the Indonesian VAT Law, while in the non-collected VAT facility, the related input tax can still be credited as long as it meets the applicable provisions. This difference is important for shipping companies to understand because it has a direct effect on the cost structure, especially for companies that have a combination of transportation services and fleet maintenance services in one entity.
Issues to be aware of
- Cost and cash flow impact. Each VAT facility scheme affects the company’s cost structure and cash flow differently, so shipping businesses need a clear understanding of which scheme applies to each service they deliver.
- Risk of misclassification. Treating input tax under the exempt scheme the same way as under the no-collect (VAT not collected) scheme is a common error that may result in tax corrections in a future audit.
- Supporting documentation. Transport contracts, tickets, bills of lading, and other supporting documents must be available and consistent with the facility claimed, as proof of service classification is a frequent focus of the tax authorities during audits.
- Periodic review of input tax treatment. Companies should review their input tax treatment regularly, particularly those operating in more than one maritime business line, where different facilities may apply to different revenue streams.
Conclusion
Overall, the national shipping sector receives specially designed tax treatment, ranging from final income tax with its own calculation norms to two VAT facility schemes with different mechanisms and consequences for input tax. This provision reflects the government’s efforts to maintain the competitiveness of national logistics costs while supporting the sustainability of the maritime industry, in line with the spirit of National Maritime Day to strengthen Indonesia’s position as an archipelagic country that relies on sea connectivity.
Andersen Indonesia is ready to assist shipping companies in assessing the implementation of the final income tax scheme and appropriate VAT facilities, including ensuring administrative compliance, supporting documentation, and input tax crediting in accordance with applicable regulations. Contact the Andersen Indonesia for further consultation.
By Tommy Hendharto Oetomo – Managing Partner