Regulation to Exempt Labor Services from VAT

Mahinda Arkyasa

The Minister of Finance recently issued Regulation No. 83/PMK.03/2012 on Criteria and Details on Labor Services Exempted from Value Added Tax (“Regulation”). The Regulation stipulates the categories of labor services that are exempted from value added tax (“VAT”). It also determines the tax base for labor services that are subject to VAT.

The Regulation divides labor services that may be exempted from VAT into three categories: labor services, labor supplier services, and labor training organizer services (Article 1 (2)).

The requirements to be exempted from VAT include the following: a labor should receive compensation in form of salary, honorarium, or allowance, after a service is given; and a labor should have direct responsibility to a service user (Article 2). Services that fall under Article 2 may vary from health care service, social service, to public service from the government (Article 5 of the Government Regulation No. 144 of 2000 on Goods and Services Exempted from Value Added Tax).