Understanding the End-to-End Approach in Tax Compliance Monitoring
To ensure taxpayers comply with applicable tax regulations, the Directorate General of Taxes (DGT) will conduct supervision. This supervision covers all tax obligations, whether they are upcoming, not yet fulfilled, or already completed.
It is important for taxpayers to understand the supervision process carried out by the DGT to avoid tax risks. This includes ensuring that all tax obligations are met.
To make the compliance monitoring activities effective, the DGT has adopted a reliable and comprehensive approach, known as the end-to-end approach. This end-to-end approach consists of supervision activities that include planning, implementation, follow-up, as well as monitoring and evaluation.
In the planning phase, there are two activities carried out by the tax authority. First, the preparation of the supervision plan, followed by the preparation of the supervision priorities.
Then, in the implementation phase, the DGT will conduct research on formal compliance, material compliance, request clarifications on data and/or information, and make visits to taxpayers.
Formal compliance monitoring is conducted by overseeing the periodical tax payments (PPM) that are due in the current year and research on material compliance for the current tax year, along with field visits to taxpayer locations.
Meanwhile, material compliance supervision is the supervision of taxpayers through research on formal compliance due before the current tax year and research on material compliance. This includes analyzing tax data for the tax year before the current tax year, as well as field visits to taxpayer locations.
Steps in Supervision
In the implementation phase, at least eight steps are taken by the DGT, including:
- Proposal for an audit
- Proposal for an audit of initial evidence
- Proposal for observation activities and/or intelligence operations
- Proposal for tax purposes
- Proposal for changes in taxpayer data and/or status by authority
- Proposal for changes in taxpayer service administration and/or tax facilities by authority
- Notification to the taxpayer
- Proposal for corrections to legal products by authority
Then, for the monitoring and evaluation phase, these will be carried out at the level of the Head Office, Regional Offices, and Primary Tax Offices (KPP) of the DGT.
Territorial-Based Supervision
In conducting its supervision, the Directorate General of Taxes (DJP) will also use a segmentation and territorial approach. This means that the DGT will classify taxpayers into Strategic Taxpayers and Other Taxpayers.
Included among Strategic Taxpayers are:
- High Wealth Individuals (HWI) and Taxpayer Groups,
- Related transactions suspected of engaging in transfer pricing, and
- Taxpayers from sectors with high growth and significant contributions to tax revenue.
Meanwhile, Other Taxpayers consist of those who do not meet the criteria of Strategic Taxpayers, including both those who already have a Taxpayer Identification Number (TIN) and those who do not.
Supervision of those who do not yet have a TIN is referred to as extensification. Through extensification, the DGT ensures whether an individual meets the subjective criteria as a taxpayer or not. Extensification is carried out based on data and/or information, including external data and internal data from Field Data Collection Activities (KPDL).
Audit
An audit is one of the tools used by the DGT to monitor tax compliance. The implementation of tax audits is regulated under tax laws.
In 2022, the DGT employed a priority-based audit strategy. The audit priorities for 2022 included taxpayers in prospective sectors such as e-commerce, logistics, and delivery services, as well as PMSE (Electronic System Trading) business operators and merchants.
Additionally, audits were prioritized for taxpayers in high-potential sectors such as healthcare and pharmaceuticals, minerals and coal, oil and gas, and financial technology.
Audits were also focused on both Strategic Taxpayers and Other Taxpayers who met certain criteria, including taxpayers granted early refunds of tax overpayments, taxpayers filing annual corporate income tax returns with reported losses but no tax overpayments, group taxpayers, taxpayers engaging in related transactions, or those suspected of engaging in transfer pricing. (ASP/KEN)
