E-invoice, locally known as e-Faktur was the Indonesian tax administration’s breakthrough reform in the field of tax control. It was introduced in 2014 and became effective nationally in July 2016.
Indonesia previously experienced challenges in its tax control system, mainly due to fictitious invoices that caused a large tax gap, with a negative impact to the total Indonesian VAT revenue. To help solve this problem, Indonesia implemented a clearance e-invoicing system, where all issued invoices must be approved by the tax authority before being sent to the customer.
A closer look at the e-invoicing flow
The Director General of Taxation (DGT) established different methods for e-invoice creation, including client desktop applications, web-based applications, and host-to-host applications.
However, companies need to perform several steps before they can begin using e-invoicing. The first of these requires obtaining an electronic certificate containing the taxpayer’s identity for the purpose of creating a digital signature. Electronic certificates are valid for two years from the time of issuance. Taxpayers also need to obtain an activation code and password to access an application, referred to as e-Nofa, to request the electronic tax invoice serial numbers (NSFP) that are required on invoices.
After completing these requirements, the taxpayer must issue all tax invoices in the e-Faktur system so that invoices can receive a QR code and be approved by the DGT online. The supplier may only send the invoice to the customer after the invoice has been approved. After this procedure, taxpayers should use their e-Faktur applications to prepare their periodic VAT return (SPT), which is usually submitted on a monthly basis.
On the buyer side, the e-Faktur that the buyer receives should be validated through the VAT input feature in the e-Faktur application or by scanning the QR code as printed on the e-Faktur.
Continuous transaction control (CTC) system maturing
The DGT released the new e-Faktur version 3.0 on 1 October 2020. In this application there are several new features available, including pre-populated input taxes and a pre-populated tax return for the period of VAT.
This development follows examples seen in countries such as Chile and Italy, where an initial e-invoice clearance implementation has enabled the tax authorities to gain a greater understanding of the tax landscape and close tax gaps. Instead of taxpayers reporting their VAT balances on a periodic basis, as has been the norm in all countries with indirect tax, the tax authorities can leverage data reported in real-time to pre-populate tax returns.
In other words, the tax authority stops relying on data as reported in aggregate by taxpayers and instead delivers the reports to the taxpayers. If past clearance implementations in other countries can serve as inspiration of what is to come in Indonesia, it’s safe to say that the Indonesian CTC system won’t stop with pre-populated VAT returns but continue to evolve and mature by leveraging the data gathered to benefit both taxpayers and fiscal administration.
Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.