Every progress payment involves two taxes. VAT is added to the bill and paid over to the state: it is not the contractor’s money. Final income tax is withheld from the payment: it reduces the cash received. Both must be calculated right on the bill and recorded right in the reports, so cash flow and profit are not off.
- Payment value (tax base) Rp200 m
- VAT Rp22 m
VAT on construction services
- A VAT-registered contractor charges VAT on construction services. Since 2025 the rate is 12% on a base of 11/12 of the price for non-luxury goods and services, so the effective rate is 11% (PMK 131/2024). Since 1 April 2025 tax invoices show 12% with the 11/12 base.
- A tax invoice is issued for every progress payment and for any down payment received.
- On government projects, VAT is usually collected and paid over directly by the client’s treasurer, so it never reaches the contractor’s account.
- VAT on material purchases (input VAT) can be credited if the purchase invoices are valid.
Final income tax rates on construction (PP 9/2022)
| Service | Provider | Rate |
|---|---|---|
| Construction work | Small qualification, or a certified individual | 1.75% |
| Construction work | Medium, large or specialist qualification | 2.65% |
| Construction work | No business or competence certificate | 4% |
| Integrated construction work | Certified business / not certified | 2.65% / 4% |
| Construction consulting | Certified / not certified | 3.5% / 6% |
Final income tax is calculated on the payment excluding VAT. If the client is a withholding agent, it withholds the tax when paying and gives the contractor a withholding slip; if not, the contractor pays it over itself. PP 9/2022 is under review, so check the current rate before billing.
Example: one progress payment
| Item | Amount |
|---|---|
| Payment value (tax base) | Rp200,000,000 |
| VAT 12% × 11/12 | Rp22,000,000 |
| Total bill | Rp222,000,000 |
| Down payment and retention deducted | minus Rp50,000,000 (see the MC article) |
| Final income tax 2.65% of Rp200 m | minus Rp5,300,000 |
| VAT (paid over by the contractor, or collected by the treasurer on government projects) | Rp22,000,000, not revenue |
Recording it
- Project revenue is recorded without VAT. Output VAT is a liability until paid over.
- Withheld final tax is recorded as a tax expense, and its withholding slip kept per payment.
- In the cash flow, use the cash actually received, not the bill including VAT.
Common mistakes
- VAT recorded as revenue, so profit looks larger.
- No tax invoice for the down payment.
- Withholding slips not collected, so receivables never clear in the books.
- Using the tax rate for the wrong qualification.
The full guide is in How to create a construction finance report in Google Sheets. It has a free template (Excel or Google Sheets) and a checker that reads your own workbook.
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Common questions
What is the VAT on construction services?
Since 2025, 12% on an 11/12 base for non-luxury services, 11% effective (PMK 131/2024).
What is the final income tax rate on construction?
Under PP 9/2022: 1.75% for small or certified individuals, 2.65% for medium, large or specialist, and 4% without a certificate. Consulting 3.5% or 6%.
Is final income tax calculated on the amount including VAT?
No. It is calculated on the payment excluding VAT.
References
- DDTCNews: construction final tax rates revised (Indonesian): PP 9/2022 rates
- DDTCNews: VAT on an 11/12 base (Indonesian): PMK 131/2024