Tax objection and its’ problematics
In Indonesia, taxation provisions on tax objection are governed in Act Number 6 Year 1983 concerning General Definitions and Taxation Procedures as several times amended lastly by Act Number 16 Year 2009, especially Article 25, 26, and 26 A and its’ implementing regulations.
In brief the provisions on tax objection are as follows:
Taxpayers may lodge a tax objection to the Director General of Taxes shall only for the following matters:
- Notice of Tax Under payment Assessment;
- Notice of an Additional Tax Under payment Assessment;
- Notice of Nil Tax Assessment;
- Notice of Tax Over payment Assessment;
- Withholding by third parties under the provisions of the tax laws.
Requirements for lodging a tax objection
- Objections shall be submitted in writing in Indonesian Language by stating the amount of tax payable, the amount of tax withheld, or the amount of losses as calculated by the taxpayers, supported by clear reasons.
- Objections shall be filed within 3 months from the date of sending of the notice of tax assessment or the date of tax withholding by third parties, unless the taxpayers can demonstrate that the period cannot be fulfilled due to circumstances beyond their control.
- In case a taxpayer files an objection for a notice of tax assessment, the taxpayer shall settle the tax payable at least to the amount of tax as agreed by the taxpayer in the closing conference of a tax audit, prior to the submission of objection request.
Objection that does not meet the requirements above shall not constitute valid objection, and as such will not be taken under consideration.
The obligations of the Director General of Taxes in connection with tax objection
- If requested by taxpayers for the purpose of submitting objections, the Director General of Taxes shall be obliged to provide written information on matters, which constitute the basis for imposition of tax, calculation of losses, or withholding of tax.
- The Director General of Taxes within 12 months as from the date of receipt of the objection application shall make a decision on the submitted objection. Where the period as mentioned above has elapsed and the Director General of Taxes has not made any decision, the requested objections are considered granted.
Other important provisions
- Financial accounts, notes, data, or other information disclosed by taxpayer in the objection process that are not disclosed during audit process, with the exception of data and information that are not possessed by taxpayer during the audit process, are not to be considered in the objection decision.
- The amount of unpaid tax at the time of request for objection does not constitute as tax liabilities.
- In case the objection requested by taxpayer is disapproved or partially granted, the taxpayer shall be imposed with an administrative penalty in the form of 50% fine of the amount of tax as specified by the Decision on Objection minus the amount of tax paid prior to the objection request. In case a taxpayer requests for an appeal, the administrative penalties in the form of 50% fine shall not be imposed.
- Tax objection is one of the means given to the taxpayer to look for justice and truth when he found he had improperly taxed. However, in fact the tax objections are processed by the same government institution that also conducting tax audit and conducting tax assessment. Hence, in practical experience almost 90% of the tax objections raised by the taxpayer were rejected. Consequently, the tax objection lodged by taxpayers are potentially rejected and the taxpayers potentially shall bear the risk to pay more taxes due to administrative fine of 50% in case the objection is rejected.
- In accordance with the principles of triad politics adopted by Indonesia, the tax objection as quasi-judicial should be processed by different institutions with institutions that conducting tax assessment. In other words the objection shall be processed by institution which is not under the Directorate General of Taxes organization.
- Documents those are not disclosed during the tax audit process shall not be considered in the objection decision. To my opinion, this provision is not fair. What if the documents in question were not requested by the tax auditors during the tax audit process, whereas the documents were related to the fiscal correction made by the tax auditors. Those documents are very important evidences which can be used by the taxpayer to support the reasons for the objection.