Tax Invoice Code 010 vs 070: Minor Error, Potential Tax Assessment

Tax incentives for bonded zones were originally designed to promote exports and attract investment. The government provides various facilities, including Value Added Tax (VAT) not collected on certain goods used for production activities within the bonded zone. Conceptually, this facility ensures that export-oriented industries are not burdened with VAT, which could otherwise reduce the competitiveness of Indonesian products in the global market. 

Bonded zones hold a strategic position in the national economy. Data from the Directorate General of Customs and Excise (DGCE) show that bonded zones contribute nearly 40% of Indonesia’s total non-oil and gas exports. This means that bonded zones are one of the main pillars of Indonesia’s export sector. In this context, regulatory certainty and administrative simplicity are crucial to ensure businesses can operate efficiently without unnecessary compliance risks. 

However, realities in practice show a different picture. Many businesses face tax issues not because of fictitious transactions or tax avoidance schemes, but due to seemingly simple administrative errors—namely, the incorrect use of tax invoice codes. 

This administrative technical issue can escalate into disputes or tax corrections, potentially creating legal uncertainty and additional costs for businesses. Instead of strengthening export competitiveness, such situations may erode the benefits the facility was designed to support the growth of national industries. 

An Administrative “Trap” Behind Fiscal Facilities 

A bonded zone is a special area used to store and process goods, whether imported or sourced domestically, before the goods are exported or used in production. Given their export orientation, the government provides several facilities, including the non-collection of VAT or VAT and Luxury Goods Sales Tax on certain taxable goods and services used for business activities within the zone. The logic is simple: goods used to produce export products should not be burdened with VAT. 

In their operations, companies in the bonded zone do not only import raw materials, but also purchase various supplies from the domestic market, including supporting materials, packaging, machinery, office equipment, and research-related items. 

For such transactions, Minister of Finance Regulation (PMK) Number 131/PMK.04/2018, as amended by PMK Number 65/PMK.04/2021 on Bonded Zones provides clarity that excise exemptions and VAT or VAT and Luxury Goods Sales Tax not-collected facilities remain available as long as the goods are used for business activities within the bonded zone. 

The issue arises when these rules must be translated into tax administration. A VAT not-collected facility is only considered valid when reflected in a tax invoice using a specific transaction code, namely code 070. This code indicates that the transaction receives the facility. 

In practice, however, incorrect tax invoice codes are still frequently used. It is not uncommon for VAT-registered sellers to issue invoices using code 010, which is normally used for regular VAT-collected transactions. Such mistakes often occur due to limited understanding, either by the seller or the buyer, regarding VAT facility rules for bonded zones. 

As a result, even when the transaction substantively qualifies for the facility, an incorrect invoice code can become the basis for tax corrections by the tax authority and lead to VAT assessments during audits. 

Formality vs Substance in Tax Invoices 

Article 13 paragraph (1a) of VAT Law requires that a tax invoice be issued at the time taxable goods or services are transferred. The invoice must include specific information such as the identity of the seller and buyer, the type of goods or services delivered, the selling price or consideration, the VAT collected, and the tax invoice code and serial number. These provisions essentially establish the formal requirements for a legally recognized tax invoice. 

Article 13 paragraph (9) further states that a tax invoice that does not meet the formal and material requirements referred to in paragraph (5) cannot be treated as a tax invoice. In other words, if certain elements are missing, such as incomplete data or a non-genuine transaction, the tax invoice may be considered defective and cannot serve as the basis for VAT input credit. 

In many cases involving transactions between VAT-registered sellers in the customs territory and businesses in bonded zones, the tax invoice issued, even when using code 010, actually fulfills all these elements. The invoice is issued at the time of the transfer and contains all required information. The transaction itself is real and verifiable. 

Under such circumstances, the tax invoice essentially meets the formal and material requirements under Article 13 paragraphs (5) and (9). The only issue lies in the selection of the transaction code. From a broader administrative perspective, it is difficult to conclude that an incorrect code alone should automatically invalidate the taxpayer’s right to credit VAT input when all other requirements have been met. 

Moreover, the VAT-registered sellers in such transactions have collected and paid the VAT payable to the state treasury. Therefore, no actual loss to state revenue arises. The tax has been paid, the transaction genuinely occurred, and the documentation is complete. 

This is where the issue lies. When VAT input is denied solely due to an incorrect invoice code—while the substance of the transaction is valid and no state revenue is lost—the dispute is essentially about administrative formality rather than economic reality. An overly rigid approach to such technical matters risks overlooking the fundamental purpose of VAT itself: taxing consumption fairly and proportionally. 

The Logic of Corrections That Deserves Review 

The VAT Law clearly regulates responsibility for issuing tax invoices. Article 13 states that the obligation to issue tax invoices correctly, completely, and on time rests with the VAT-registered sellers. This includes determining the appropriate transaction code based on the nature of the transfer. 

Legally, this means that the seller is responsible for whether the invoice code used is correct. 

By contrast, the buyer can only receive the invoice issued by the seller and credit the VAT input based on that document. The buyer, including businesses located in the bonded zone, has no legal authority to change, correct, or replace the tax invoice code issued by the seller. If an incorrect code is used, the buyer cannot unilaterally amend it. 

In this context, it becomes problematic when all consequences are imposed on the buyer. If the issuance error is entirely beyond the buyer’s control, imposing corrections, tax assessments, and administrative sanctions on the buyer may conflict with principles of fairness and legal certainty. 

Furthermore, the consistency of enforcement is also worth questioning. If the VAT-registered seller who issues the invoice using code 010 is not subject to correction for VAT output and the VAT already collected and paid is still recognized as state revenue, while the buyer is subject to corrections and penalties, the treatment becomes unbalanced. The state recognizes the tax payment but simultaneously denies the buyer’s crediting right. 

Such situations create the impression that administrative errors are interpreted in a one-sided and overly formalistic manner. Yet at its core, VAT is a consumption tax designed to remain neutral for businesses. When the tax has been collected and paid, and the transaction genuinely occurred, focusing solely on a coding error without considering substantive risks contradicts that principle. 

The case of codes 010 and 070 illustrates that tax disputes do not always arise from attempts to avoid tax, but from administrative details and differing interpretations of technical rules. In such circumstances, buyers are in a vulnerable position because they bear the risks associated with documents that are legally the responsibility of another party. 

For this reason, a more balanced approach from the tax authority is necessary when addressing errors in tax invoice codes. Emphasizing the responsibility of the VTAT-registered sellers as the invoice issuer should be the starting point. 

At the same time, if the error is administrative and does not cause any loss to the state, corrections should be applied proportionally rather than automatically denying the taxpayer’s right to credit VAT input. Clearer technical guidance and ongoing outreach to businesses are also essential to prevent similar issues from recurring and escalating into disputes in the future. (KEN) 

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.