Tax Dispute
A tax dispute will ensue if taxpayers do not agree with or reject the the Underpaid Tax Assessment Notice. What legal recourse do taxpayers have if the tax dispute reaches the courts?
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The Directorate General of Taxation is likely to further intensify its tax collection efforts and legal enforcement in order to meet the higher tax receipt targeted in the 2018 State Budget.
In particular, after the tax amnesty carried out in accordance with Law No, 11/2016 on Tax Amnesty, the government issued Government Regulation No. 36/2017, dated Sept. 6, 2017, on Income Tax (PPh) Treatment on Net Assets Considered as Incomes.
Government Regulation No. 36/2017 targets taxpayers who have not reported all of their net assets, whether they participated in the tax amnesty or not.
In reinforcing the regulation on tax collection following the tax amnesty, the Finance Minister issued Regulation No. 165/PMK.03/2017, dated Nov. 17, 2017, on the Implementation of Law No. 11/2016 on Tax Amnesty.
These tax amnesty regulations stipulate how the Directorate General of Taxation should manage taxpayers, whether they have or have not joined the tax amnesty program, if it finds unreported net assets.
For taxpayers who participated in the tax amnesty, the unreported assets will be regarded as additional income and taxed through the issuance of the Underpaid Tax Assessment Notice (SKPKB). The additional income will be subject to a final income tax at rates stipulated in Article 4 of regulation No. 36/2017, plus a 200 percent administrative sanction on the original tax payment in accordance with the provisions of the Tax Amnesty Law.
As for taxpayers who did not participate in the tax amnesty, if the taxation office finds assets that were not reported in the Annual Income Tax Return, the additional income will be subject to a final income tax at rates stipulated in Article 4 of regulation No. 36/2017, plus an administrative sanction of 2 percent monthly interest for a maximum 24 months in accordance with the Law on General Provisions and Procedures for Taxation.
Tax amnesty dispute
A tax dispute will ensue if taxpayers do not agree with or reject the SKPKB. What legal recourse do taxpayers have if the tax dispute reaches the courts? Article 19 of the Tax Amnesty Law stipulates that, "Any dispute relating to the implementation of the Tax Amnesty Law can be resolved only through the filing of a lawsuit, and the legal suit may only be filed with the Tax Court."
Furthermore, Article 46, Paragraph 3 of the Finance Minister Regulation No. 165/2017 states that dispute settlements over the issuance of an SKPKB in connection with the Tax Amnesty Law must be carried out in accordance with the Law on General Provisions and Procedures on Taxation. It means that in the tax dispute on the issuance of the SKPKB notification in the framework of the implementation of the Tax Amnesty Law, the legal effort is carried out through the filing of a lawsuit to the Tax Court.
Meanwhile, according to the procedural law in the Tax Court (Article 31 of Law No. 14/2002 on the Tax Court), there are two ways of dispute resolution, namely through appeals or lawsuits. The process of appeals and lawsuits at the Tax Court is based on the provisions contained in Law No. 6/1983 on General Provisions and Procedures for Taxation, which has been revised into Law No. 16/2009 on General Provisions and Procedures for Taxation (UU KUP).
If the taxpayer disagrees with the content/material of the tax assessment notification, such as the amount of tax, then the taxpayer may file an objection with the tax office (Articles 25 and 26 of the KUP Law). If the tax office issues a rejection on the objection, this can be used as the basis for appealing to the Tax Court (Article 27 of the KUP Law).
Meanwhile, the object of a lawsuit is regulated in Article 23, Paragraph 2 of the KUP Law as: (a) upon the execution of a distress warrant, a warrant for the execution of a seizure or auction announcement; (b) a rejection decision in the tax collection framework; (c) decisions relating to the implementation of taxation other than those established in Article 25, Paragraph 1 and Article 26; or (d) the issuance of tax assessment notification or objection letters that are not in accordance with the procedures or procedures set forth in the provisions of the taxation legislation.
Therefore, in accordance with the Tax Court Law and the KUP Law, if the tax dispute concerns the content/materials of the SKPKB, the legal recourse after the tax office’s rejection should be an appeal, not a lawsuit as mentioned in Article 19 of the Tax Forgiveness Law.
Regulatory improvements
In order to overcome the legal problems in the settlement of tax disputes in connection with the implementation of the abovementioned tax amnesty regulations, it is necessary to improve the relevant rules. The best step to take is to revise the provisions of Article 19 in the Tax Amnesty Law.
The editorial arrangement of Article 19, Paragraph 1 of the Tax Amnesty Law should be revised as: "Any dispute related to the implementation of this law may be settled through the filing of an appeal or a claim in accordance with the provisions of the law governing the general provisions and procedures for taxation.” Thus, the provision will be in line with both the Tax Court Law and the KUP Law.
As long as the tax dispute concerns the content/material of the SKPKB, then the legal effort is made through an appeal, whereas if the dispute concerns the issuance procedure or the formal provisions on the issuance of the SKPKB, then the legal effort should be made through a lawsuit.
If, however, the Tax Amnesty Law is not revised – which would mean that disputes over the implementation of the Tax Amnesty Law should be through a lawsuit as stipulated in Article 19 of the Tax Forgiveness Law – then what legal step should be carried out? The only alternative is to file a lawsuit over the issuance of the SKPKB, a step which many taxpayers have taken as stipulated in Article 36, Paragraph 1(b) of the KUP Law.
Many taxpayers prefer to use the provisions of Article 36, Paragraph 1(b) of the KUP Law rather than the objection procedure pursuant to Article 25 of the KUP Law, because the allotted time for settling the petition is faster at a maximum six months. Meanwhile, the allotted time the objection procedure is longer at a maximum 12 months.
The provision of Article 36, Paragraph 1(b) of the KUP Law reads: "The Director General of Taxation, as a result of the position or the petition of the taxpayer, may reduce or revoke an incorrect tax assessment letter."
Article 36, Paragraph 1(b) of the KUP Law is in line with Article 23, Paragraph 2 of the KUP Law, which regulates the basis for filing a lawsuit with the Tax Court. In the case of the SKPKB issuance, taxpayers generally do not file an objection under Article 25 of the KUP Law and instead choose to petition for the revocation of the SKPKB through Article 36, Paragraph 1(b), and if the request is then rejected, the rejection decision becomes their basis for filing a lawsuit with the Tax Court.
The basic provisions of Article 23, Paragraph 2(c) of the KUP Law reads: "A lawsuit by a Taxpayer or Taxpayers against decisions relating to the implementation of taxation decisions, other than those established in Article 25, Paragraph 1 and Article 26, may only be filed with the Tax Court.”
In practice, however, the provision of Article 36, Paragraph 1(b) of the KUP Law is often debated because it is deemed to overlap with the mechanism for canceling the SKPKB through filing an objection pursuant to Articles 25 and 26 of the KUP Law.
The KUP Law does not provide clear criteria or restrictions for the terms of canceling an SKPKB filed under this article, nor specifies its difference with the appellate mechanism for the SKPKB that is set forth in Article 25.
The explanation for Article 36, Paragraph 1(b) includes: "In addition, the Director General of Taxation, due to his position or upon the Taxpayer\'s application and based on the element of justice, may reduce or cancel an incorrect tax assessment notification, such as taxpayers who are denied submitting an objection for not fulfilling formal requirements (the objection letter was not filed on time), even though the material requirements are met."
In fact, the contents of the aforementioned article only provides a single case in which the provision of Article 36, Paragraph 1(b) can be used, that is, when the taxpayer cannot pursue an objection according to to Article 25 of the KUP Law because they are unable to fulfill the formal appellate procedure, but is otherwise correct and the SKPKB is wrong based on the material/substance.
Therefore, for reasons of fairness, the Director General of Taxation can, upon their authority, cancel the tax assessment notification. In its explanation, the article actually refers only to a single example and does not clearly specify any legal norms on the criteria and requirements for filing a petition.
In practice, the article is interpreted broadly to apply to anything that concerns the formal aspects or procedures of determining/issuing an SKPKB that are deemed to be non-compliant with the prevailing taxation rules, and legal efforts are then pursued under Article 36, Paragraph 1(b) of the KUP Law.
In addition, another view is that the use of Article 36 falls under the full authority of the Director General of Taxation, so taxpayers petition for the cancellation of the tax assessment notification, expecting the clemency of the Director General of Taxation. In fact, under the current conditions, it is unlikely that the Directorate General of Taxation would be willing to cancel an SKPKB without sufficient juridical grounds, even for reasons of fairness.
In the context of this discussion over the revision of the KUP Law, the provision of Article 36, Paragraph 1(b) must be revisited in order to clarify its criteria and scope and to clarify its difference with the objection mechanism set forth in Articles 25 and 26 of the KUP Law. In the context of the implementation of the Tax Amnesty Law, it is also necessary to consider when revising the KUP Law, specifically the SKPKB issuance, whether Article 36, Paragraph 1(b) can be used to settle tax disputes.
The dispute resolution over the SKPKB issuance, in connection with the tax amnesty, should be simplified. This is because in principle, it only matches the data on assets as reported by the taxpayers with the assets data on record with the tax office, and does not involve an examination or verification process that uses complex bookkeeping/recording methods, as in the settlement of objections under Article 26 of the KUP Law.
Ferdy A Sihotang, Working at the Tax Court
