Get to know PPh and VAT: Definition, Differences, Types, and Calculation Rates

When shopping at a fast food restaurant or shop in a Mall, you must have found a tax description line on your shopping receipt. This phenomenon proves that taxes are something that is very close to us. The tax that is usually found when shopping is a Value Added Tax (VAT). If you talk about VAT, it's not good enough if it's not accompanied by discussing Income Tax (PPh). 

The terms PPh and VAT may not be foreign to you. PPh and VAT are not only terms that are familiar to taxpayers. Lately, the public has been shocked by the imposition of VAT on electronic entertainment platforms such as: Netflix, Spotify, Zoom, to Steam through VAT regulations PMSE (Trading Through Electronic Systems). What exactly is PPh and VAT? What is the difference between PPh and VAT? How are the rates for the two taxes calculated? The following is a discussion of the difference between PPh and VAT along with the definitions and types of the two taxes.

Income Tax (PPh)

PPh stands for Income tax. From the abbreviation, it can be seen that PPh is a tax imposed on taxpayers (can be either an individual or an individual). business entity) on the income they receive in a tax year. Income Tax is known as a subjective tax because this tax is charged according to the condition of the subject, namely the taxpayer. 

Taxpayers are individuals or business entities that have the authority to pay, withhold and collect taxes. Taxpayers also have a set of rights and obligations related to taxes in accordance with applicable regulations. Meanwhile, according to the Income Tax Law, income is defined as any additional economic capability obtained by the taxpayer from wherever it originates which can be used to increase the wealth of the taxpayer. 

Income Tax has several types and is regulated in various articles. The rate of the PPh tax will adjust to the PPh. So, to find out the tax rate of a taxpayer, it is necessary to first identify the type of income tax that applies to the taxpayer.

Type of Income Tax (PPh)

The following are several types of Income Tax (PPh) and an explanation of these types of taxes.

Income Tax Article 15

PPh Article 15 is an income tax imposed on taxpayers imposed on companies with special provisions. The categories of taxpayers included in this type of tax include companies in the international aviation industry, shipping, foreign insurance companies, taxpayers from abroad with offices in the country, taxpayers with industries engaged in tolling services ( manufacturing activities to meet the needs of others), and so on. This PPh tax provides different rates depending on which industry the company operates in.

Income Tax Article 21

The next Income Tax is Income Tax Article 21. Income Tax Article 21 is a tax imposed on income which is in the form of salaries, honoraria, wages, commissions, allowances, and others. Some categories that are taxed with PPh 21 include employees, pension recipients, members of the board of commissioners, former workers, and so on.

The calculation of Article 21 Income Tax will be closely related to tax rates, provisions for office fees, and Non-Taxable Income (PTKP). Position costs are costs to obtain, collect, and maintain income which these costs can be deducted from the income of each individual who works as a permanent employee. The cost of office in accordance with the Regulation of the Minister of Finance (PMK) No. 250/PMK.03/2008 is 5 percent a maximum of Rp. 6 million a year or Rp. 500.000 a month.

PTKP is the amount of personal income of taxpayers who are exempt from income tax. The way to calculate PTKP is as follows.

• Individual taxpayers can exempt an amount of IDR 54 million per year from being included in the calculation of income tax.
• When the taxpayer is married, the taxpayer can deduct an amount of IDR 4,5 million per year so that it is not counted in the income tax
• For a wife whose income is combined with her husband's, the taxpayer can deduct another IDR 54 million per year so that it is not counted in PPh
• Each additional dependent (for example, children or other family members) allows taxpayers to reduce their income which is calculated as PPh as much as IDR 4,5 million per year.

 The rate of PPh 21 tax is as follows.

1. If the income for a tax year is IDR 50 million, then the tax rate is 5%
2. If income is between IDR 50 million - IDR 250 million, then the tax rate charged is 15%
3. When income ranges from IDR 250 million to IDR 500 million, the tax rate imposed on the taxpayer is 25%
4. Finally, when the taxpayer's income is above IDR 500 million, the tax rate charged is 30%

Income Tax Article 22

Income Tax Article 22 is a tax imposed on taxpayers who carry out export and import activities. This tax usually applies to business entities, whether they are state-owned enterprises or private business entities that carry out trading activities in goods. The tax rate imposed on Article 22 Income Tax taxpayers varies based on the tax object and the type of transaction carried out by the taxpayer.   

Income Tax Article 23

Article 23 Income Tax is a tax imposed on income originating from capital, service delivery, gifts, awards, or other things other than those recorded in Article 21 Income Tax. Basically, Article 23 Income Tax is imposed on taxpayers who are conducting transactions. The rate imposed for Income Tax Article 23 is based on the Tax Imposition Base (DPP) or the gross value of income. 

Income Tax Article 25

PPh Article 25 is a tax that can be paid in installments. This tax has the aim of easing the burden on taxpayers in paying taxes which are usually carried out annually. This tax payment must be paid by yourself without being represented by another person. If the payment of this tax is late, the taxpayer will be penalized with a fine of 2% per month. 

Income Tax Article 26

This tax is an income tax imposed on income originating from Indonesia and obtained by taxpayers originating from abroad other than a Permanent Establishment in Indonesia (BUT). 

Income Tax Article 29

Income Tax Article 29 is an underpaid tax that needs to be paid by taxpayers, and the tax burden has been written in the Annual Tax Return (SPT). In simple terms, the income tax that must be paid by the taxpayer is the remaining income tax payable in a certain tax year and is reduced by the amount of the income tax credit.

Income Tax Article 4 paragraph (2)

PPh Article 4 paragraph (2) is often known as final PPh. This tax is a tax imposed on taxpayers on several types of income they can earn. This withholding tax is final (only once in a tax period) as the name suggests so this tax cannot be credited with Income Tax payable. 

Value Added Tax (VAT)

VAT stands for Value Added Tax. VAT is a tax levied on the production process and distribution of a product and this tax is levied on the final consumer of the product. Through this information, we can see that the difference between PPh and VAT is basically in the imposition of these two taxes. PPh imposes taxes on the subject, namely the person who receives the income. However, VAT imposes a tax on objects where this tax does not look at the condition of the taxpayer but looks at the nature of the tax object (in the form of consumer goods).

Value Added Tax can be imposed on anyone who buys a certain item. For example, you buy a package of food and drinks at a fast food restaurant, you can see some of the money you spend is used to pay this tax. 

Object of VAT

1. Taxable Goods (BKP) and Taxable Services (JKP) in the customs area where entrepreneurs carry out business processes
2. BKP Import
3. Utilization of intangible BKP from outside the customs area within the customs area
4. Intangible JKP beneficiaries from outside the customs area within the customs area
5. Export of BKP, both tangible and intangible and export of JKP by PKP. PKP is an obligatory party 

VAT is levied on goods and services including the following. 

• Mining goods or drilling products which he directly takes from the source
• Food and drinks served in restaurants, hotels, restaurants, and so on
• The basic needs that many people need
• Money, gold bullion and securities.
• Digital service products that taste from abroad such as subscriptions Netflix, Spotify, Steam Games, and so forth.

VAT has more or less two types of rates. A 10% VAT rate is imposed on VAT objects, Meanwhile, a 0% VAT rate is imposed on tangible BKP exports, intangible BKP exports, and JKP exports. Previously, a transaction product with a transaction online as Spotify and Netflix VAT is not subject to VAT tax, however, the application of VAT to this digital product is set from August 2020.

The imposition of this tax is based on PMK Number 48/PMK.03/2020. The regulation states that Trading Through Electronic Systems or known as PMSE is subject to VAT of 10%. Even the tax objects burdened by PMSE VAT include services streaming digital music, movies, apps and games.

Difference between PPh and VAT

From the definition and type of each tax described above, you may have found the difference between two types of taxes, namely PPh and VAT. The following is the difference between PPh and VAT.

• VAT and PPh have different objects of taxation. VAT imposes taxes on the production and distribution of goods and services. Meanwhile, PPh is imposed on income owned by the taxpayer.
• The rates for these two taxes are different. The VAT rate on VAT tax objects is 10%, meanwhile the calculation of the PPh rate tends to be more complex because it adjusts to the types of PPh which tend to be of many types.
• PPh is charged to taxpayers who have income, while VAT is charged to consumers of goods and services.
• There are more types of income tax, namely income tax articles 21, 22, 23, 25 and others, while the VAT tax has types, namely input tax (tax on the purchase of goods or services) and output (tax on the sale of goods and services subject to tax). 

Sometimes we may not realize how often we meet taxes on daily life. In fact, the products we normally use today, Spotify and Netflix, have been subject to VAT. Well, now are you able to identify the difference between PPh and VAT?

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