PROVISIONS ON CALCULATION OF IMPORT DUTY ON IMPORTED GOODS CONTAINING ASSIST FROM INDONESIAN CUSTOMS TERRITORY
A. Background
The provisions on customs value for calculation of import duty are regulated in Article 15 of Law No. 10 of 1995 concerning Customs which has been amended by Law No. 17 of 2006 (hereinafter referred to as the Customs Law) wherein part of the elucidation in Article 15 explains about the value of transactions including materials, components, parts, equipment, moulds, techniques, sketches, development, etc. which are supplied directly or indirectly by the buyer for the materiality of production and sales to export imported goods that are bought by the buyer.
The Directorate General of Customs and Excise (DGCE) has the authority to set customs values for imported goods in accordance with Article 16 of the Customs Law, whereby Customs and Excise Officials can set customs values before or within 30 days from the date of notification of import of goods (PIB). The determination is in the form of a SPTNP (Determination Letter on Tariff and/or Customs Value). Based on Article 17 of the Customs Law, the DGCE also has the authority to re-stipulate by issuing a SPKTNP (Letter of Re-determination of Tariff and/or Customs Value) within a period of up to two years from the date of PIB.
Whereas to date the customs value related to assists containing raw materials from within the Customs Territory has not been applied by stakeholders, it needs to be further regulated through a Regulation of the Director General of Customs and Excise.
B. Regulations on Customs Value
There are several regulations regarding customs value, but the rules on customs values which discuss assists are only in:
a. Finance Minister Regulation No. 160/PMK.04/2010 concerning Customs
Value for Import Duty Calculation (hereinafter referred to as "PMK-160/2010")
b. Finance Minister Regulation No. 34/PMK.04/2016 concerning Amendment to Finance Minister Regulation No. 160/PMK.04/2010 concerning Customs Value for Calculation of Import Duty (hereinafter referred to as "PMK-
34/2016")
C. Definition of Assist and Customs Value for Calculation of Import Duty
1) Definition of Assist
Customs value for the calculation of import duty is the transaction value of the imported goods concerned in the CIF incoterm (cost, insurance and freight) that meets certain conditions.
There are several requirements/elements of customs value; in this paper we will only discuss the element of assists. The assist is one element or condition of customs value which must be included in the calculation of import duty.
The definition of assist according to PMK-160/2010 is the value of goods and services supplied directly or indirectly by the buyer for free or at a reduced price, for the purpose of production and sales to export the relevant imported goods, insofar as the value is not included in the price that is actually paid or should be paid (payable).
In other words, assists are raw materials, goods, services, equipment, machinery, designs, etc. that are supplied/sent by the buyer/importer either from within the Customs Territory or from outside the Customs Territory to the seller/exporter (free of charge) to conduct the production process for the benefit of the buyer/importer.
“Assist” consists of (whether from outside the Customs Territory or from within the Customs Territory):
a) Materials, components, parts and similar items contained in imported goods, for example: wood, steel in sheets, fabrics, switches, capacitors etc.
b) Equipment, moulding and similar items used for the manufacture of imported goods, for example: sewing machines, carpentry tools, moulding to make goods made of plastic or rubber.
c) Material used for the manufacture of imported goods, for example:
chemicals, fuel and others.
d) Engineering, development, artwork, design, planning or sketching which are carried out anywhere and are needed for the manufacture of imported goods, for example: production engineering, technical and engineering studies of the project, conceptual formulation, construction of prototypes, blueprints, sketches for the construction.
2) Calculation of Import Duty containing assists from within the Customs
Territory
Since the amendment to the taxation laws in 1983 as the beginning of Indonesian tax reforms that replaced the taxation laws made by the Dutch colonialists (for example: the 1925 Company Tax Ordinance and the 1944
Income Tax Ordinance), Indonesia has changed its tax collection system from an official assessment system to a self-assessment system. The self- assessment system is a tax collection system that gives trust to taxpayers to calculate, pay, and report on the amount of tax that should be owed based on
the tax laws and regulations.
With the enactment of Law No. 10/1995 concerning Customs, starting from 1
April 1996 the self-assessment system also applies to the calculation of import duties and taxes in the framework of imports.
The self-assessment system contains several advantages and disadvantages. The disadvantage of this system is that it requires honesty from taxpayers. Import transactions containing royalty, proceeds or assist into the Indonesian Customs Territory will be difficult for Customs and Excise officials to detect without the honesty of the taxpayer itself. Transactions containing assist will be detected by Customs officials if a customs audit is conducted by the DGCE.
In accordance with the title of this paper, the author only discusses the calculation of Import Duty containing assist originating from within the Customs Territory (conditions for assist calculation can be seen in Annex I of PMK-160/2010).
Based on the Customs Law, imported goods originating from within the Customs Territory may be exempted from Import Duty, but if the goods originating from the Customs Territory have undergone a production process (change of shape or installed/merged into new goods) outside the Customs Territory, then we need to calculate Customs Duty that contains assists from within the Customs Territory.
D. Examples of Import Transaction Schemes Using Assist:
To understand the calculation of Import Duty that contains assists from within the Customs Territory, the following is an example of a simple export-import transaction scheme that occurs at Company A in Indonesia and Company Y in Malaysia:
- Company A in Indonesia sends raw materials from within the Customs Territory to Company Y in Malaysia to produce a beverage. The beverage is produced in Malaysia because Company A does not have a mixer machine and other machines to produce the beverage. The raw material value is USD
1,000 and the freight is USD 50. The shipping of raw materials is free; this means that Company Y does not need to pay Company A for the raw material for the beverage.
- Production of the beverage also involves raw materials from Company B from the USA with a price of USD 400 and freight value USD 60. For the delivery of these raw materials, Company Y in Malaysia only pays USD 100 to Company B in the USA.
- Company A in Indonesia will only pay the cost of the production service (tolling fees) plus raw materials used by Company Y in Malaysia; the total margin is USD 300 and freight costs of finished goods (the beverage) from Malaysia to Indonesia is USD 60.
The transaction scheme containing these assists is as follows:
Notes:
A | = | Assist/raw material from within the Customs Territory supplied by Company A to Company Y in Malaysia (C&F value) is USD 1,050 |
B | = | Assist/raw material supplied by Company B in USA is USD 400 and freight is USD 60 (CIF value). The total is USD 460, while Company Y only pays USD 100 to Company B (USA). So the total value of B is 400 + 60 -100 = USD 360 |
C | = | The total cost and the margin in Company Y (Malaysia) is USD 300 |
D | = | The freight value for the delivery of finished goods from Malaysia to Indonesia is USD 70. |
E | = | Company A must declare Customs Value which includes assists from within the Customs Territory (A), assists from outside the Customs Territory (B), invoices from Company Y in Malaysia (C) and freight value for shipping finished goods from Malaysia to Indonesia (D), so the total becomes: E = A + B + C + D |
The example of calculation (in USD):
A: raw materials/assist (CIF value) from Company A to Y (Malaysia) = 1,050
B: raw materials/assist (CIF value) from Company B in USA = 360
C: Costs and margin of Company Y (Malaysia) = 300
D: Freight cost and insurance of the importation = 70
Total of value E (customs value) in PIB (import document) = 1,780
The amount of import duty on customs value containing assists from within the Indonesian Customs Territory that must be paid by Company A in Indonesia is as follows:
(Assumption of import duty rate of 5% and exchange rate of 1 USD = Rp.
14,000)
The formula for calculating import duty containing assists from within the
Customs Territory in PMK 160/2010 is as follows:
Where:
BM |
= |
Import duty containing assists from within the Customs |
|
| Territory or from outside the Customs Territory. |
NA | = | Assist values originating from within the Customs Territory |
NT | = | Transaction value/ Customs value of imported goods |
|
| containing assists |
From the example above, the value of BM, NA and NT are:
BM = percentage rate x total customs value x exchange rate
BM = 5% x 1,780 x 14.000 = Rp 1.246.000
NA = USD 1,050 x 14.000 = Rp 14.700.000
NT = USD 1,780 x 14.000 = Rp 24.920.000
After the BM, NA and NT values are known, to calculate the actual Import Duty (import duty containing assists from within the Customs Territory) or the Import Duty value that we must declare in the import document (PIB), we use the formula, as follows:
Rp 1.246.000 = [1 – Rp 14.700.000: Rp 24.920.000] Rp 1.246.000 = [1 – 0.5898876404]
Rp 1.246.000 = 0.4101123596
(based on the equation in Mathematics, one of the values must be shifted past the "=" sign), as follows:
= Rp 1.246.000 – 0.4101123596
= Rp. 1,245,999.59 (according to the regulations must be rounded up so that it becomes Rp. 1,246,000)
In calculating the example above, the amount of import duty that contains assists from within the Customs Territory that must be paid by the importer is IDR 1,246,000. Using the Import Duty calculation formula that contains assists from within the Customs Territory in PMK 160/2010 it is not different from the BM value (Import Duty containing assists either from within the Customs Territory or from outside the Customs Territory).
Based on the result of the calculation above, the author has verified that in the example of import duty import calculation that contains assists originating from the Customs Territory in Attachment II of PMK-160/2010, the calculation does not use the formula in PMK-160/2010.
In connection with the above analysis, the author looks at the regulation before the enactment of PMK-160/2010, namely KEP-81/BC/1999 concerning the Implementation Guidelines for Determining Customs Value for Import Duty Calculation (hereinafter referred to as KEP-81/1999). Regulation KEP-81/1999 is no longer valid since the enactment of PMK-160/2010, but the author will try to use the formula to calculate Import Duty containing assists from within the Customs Territory in Attachment XI of KEP-81/1999, since the formula is different from the formula found in PMK- 160/2010.
The formula for calculating import duties containing assists from within the
Customs Territory in KEP-81/1999 is as follows:
Where:
BM = Import Duty of Imported Goods that has assists both from the outside
Customs Territory and within the Customs Territory
NA = Assist from within the Customs Territory
NT = Value of Transactions of imported goods containing assists
Based on the formula in KEP-81/1999, the author applies the transaction value as follows:
BM = 5% x 1,780 x 14.000 = Rp 1.246.000
NA = USD 1,050 x 14.000 = Rp 14.700.000
NT = USD 1,780 x 14.000 = Rp 24.920.000
The amount of Import Duty containing assists from within the Customs Territory based on the formula in KEP-81/1999 is as follows:
= Rp 1.246.000 [1 – Rp 14.700.000: Rp 24.920.000]
= Rp 1.246.000 [1 – Rp 0.5898876404]
= Rp 1.246.000 [0.4101123596]
= Rp 511.000
Based on the two examples above, there is a difference in the result in the calculation of the amount of Import Duty containing assists from within the Customs Territory. Using the formula in PMK-160/2010, the amount of import duty is Rp. 1,245,999.59 (rounded up to Rp. 1,246,000). This means that the value of the Import Duty containing assists from within the Customs Territory is the same as the value of Import Duty containing assists from within the Customs Territory or assists from outside the Customs Territory.
Meanwhile, calculating Import Duty containing assists from within Customs using the formula in KEP-81/BC/1999 results in Import Duty of Rp. 511,000. The value of Rp. 511,000 is a true and reasonable value because the value of assists from within the Customs Territory (in the form of raw materials for making the beverage) is Rp. 14,700,000. In accordance with the customs regulations, materials/goods originating from within Indonesian Customs Territory if re-imported into the Indonesian Customs Territory will be exempted from the collection of Import Duty provided that it does not undergo a manufacturing process. But because the raw material for beverages sent to Malaysia has undergone a manufacturing process and has a higher value than before, it is necessary to pay Import Duty.
Import Duty Value with customs value of USD 1,780 (import duty rate = 5% and exchange rate = Rp. 14,000) is = 5% x 1,780 x 14,000 = Rp. 1,246,000. Import duties of Rp 1,246,000 is calculated if there are no assists from within the Customs Territory or if all assists only come from outside the Customs Territory. Because the above example contains raw materials from within the Customs Territory amounting to USD 1,050 or Rp. 14,700,000, the Import Duty must be recalculated using the formula of Import Duty containing assists from within the Customs Territory.
The Import duties of Rp 1,246,000 (customs value of USD 1,780; BM rate: 5% and exchange rate: Rp. 14,000 = 5% x 1,780 x 14,000 = Rp. 1,246,000) is calculated if there are no assists from within the Customs Territory or all assists only come from outside the Customs Territory. Because the above example contains raw materials from within the Customs Territory amounting to USD
1,050 or Rp. 14,700,000, the Import Duty must be recalculated using the formula of Import Duty containing assists from within the Customs Territory.
The following is a table of differences in the calculation of Import Duty containing assists from within the Customs Territory according to PMK-160/2010 and to KEP-81/BC/1999:
Calculation of Import Duty Containing Assists from within the Customs
Territory
KEP-81/BC/1999
dated 31 December 1999
concerning Implementation Guidelines for Determining Customs Value for Import Duty Calculation
PMK-160/PMK.04/2010
dated 1 September 2010
concerning Customs Value for Import
Duty Calculation
The Assist Formula is in Appendices I
and XI of KEP-81/BC/1999:
The Assist Formula is in Appendices I
and II of PMK-160/PMK.04/2010:
Value of Import Duty containing assists
from within the Customs Territory:
Rp 511.000
Value of Import Duty containing assists
from within the Customs Territory:
Rp 1.245.999,59
(rounded up to Rp. 1,246,000)
Notes:
BM = Import Duty of Imported Goods that has assists both from outside the Customs Territory and within the Customs Territory
NA = Assist from within the Customs Territory
NT = Value of Transactions of imported goods containing assists
E. The problems that emerge for the calculation of import duty containing
assist from within the Customs Territory:
1) The typo error in the Assist Formula in Regulation of the Minister of Finance in PMK 160/PMK.04/2010 and PMK 34/PMK.10/2016.
There is a typo error in the assist formula in PMK 160/2010, and even the writing of the assist formula in PMK-34/2016 as an amendment of PMK-
160/2010 also has not been corrected. The assist formula in PMK 160/2010 is:
While the assist formula is correct as written in KEP-81/BC/1999, as follows:
2) There is no assist calculation application in the import document module
(PIB module).
In the PIB module system of the Directorate General of Customs and Excise, there is not yet available a system for calculating Import Duty containing assists originating from the Customs Territory, so if an importer has an import transaction containing assists from within the Customs Territory, but the importer cannot use the assist formula, the Import Duty paid by the importer will always be greater than it should be. From the example above, the importer will pay IDR 1,246,000, whereas in fact the importer should only pay import duty of IDR 511,000.
F. Conclusions
1. It is necessary to change the formula of assists that comes from within the Customs Territory in PMK-160/PMK.04/2010 and in PMK-34/PMK.04/2016. The formula must be in accordance with the formula in KEP-81/BC/1999. The changes must also include examples of import transactions using assists, especially assists from within the Customs Territory.
2. The Directorate General of Customs and Excise must apply the formula for
assist from within the Customs Territory in the PIB module system so that
the import duty which is paid by importers containing the value of assists from within the Customs Territory will match the actual value (fairer) because there are raw materials from within the Customs Territory which are processed abroad and re-imported into the Customs Territory.
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