Tax Refund: A Right or An Obligation?

Not long ago, President Joko Widodo confided his feeling about the complexity in handling taxation. The former carpenter admitted that he was once frustrated while taking care of a year-long tax overpayment refund. Whereas, the amount of money refunded was insignificant compared to the complicated refund process. 

Ever since, Jokowi gave up claiming refund and chose to disregard any tax overpayment. In his opinion, it gives him more nuisance than the amount of overpayment tax refunded.

The complexity of tax refund is a long-drawn issue and Jokowi is not the only one having trouble with that. Not only about the long duration, the incomplete tax overpayment refund due to correction during the audit process is also a common complaint from the Taxpayers. However, in some cases, the use of fake tax invoice to manipulate the Value Added Tax (VAT) refund was discovered.

Fundamentally, refund is a basic right for Taxpayers and, in the opposite, an obligation for the tax authority. To ensure that the right and obligation are well implemented, Taxation General Provisions and Procedures Law (UU KUP) firmly stipulates the procedures for and the term of the tax refund. This is mainly for the pre-audit overpayment tax refund, which is 3 (three) months at maximum for Income Tax refund and 1 (one) month for VAT refund for a Taxpayer deemed compliant or a VAT-Registered Person (PKP) with low risk.

Opportunity Loss

In practice, the process of tax overpayment refund is not as fast as that mandated by UU KUP. The tax authority always has consideration to collide the right and obligation of the Taxpayers while processing refund application. Consequently, a prolonged dispute will arise and it will take a lot of time, mind, and even cost for its settlement.

For the Taxpayer, a fast and easy refund is really needed to enhance their financial ability and smooth cash flow. In fact, the tax overpayment refunded by the State may be a stimulus for the business world if it is used for increasing capital expenditure.

However, the tax authority also has interest in maintaining the state’s revenue, so that the money deposited into the state treasury does not get out of it again. This orientation then raised a public opinion that the tax authority perhaps intentionally adhere to a belief: “if we can complicate the refund process, why simplify it?”

To prove that such assumption is not true, the tax authority needs to change the refund policy paradigm. If now the orientation is focusing more on maintaining the state revenue, it has to be changed to focus more on servicing the Taxpayers. One of the proofs is to simplify as well as quicken the process of tax overpayment refund.

By the issuance of Minister of Finance Regulation (PMK) Number 39/PMK.03/2018 on Procedures for Pre-audit Refund of Tax Overpayment, the Government is apparently trying to restore the tasks and functions of Directorate General of Taxes (DGT) in accordance with its basic goals. The policy, which was issued on and effective since 12 April 2018, guarantees that the pre-audit refund process will be in compliance with the UU KUP mandate, which is 15 (fifteen) days at minimum and 3 (three) months at maximum—depending on the type of tax and the criteria of the Taxpayer. 

The mechanism and steps of the tax refund process are relatively the same. Only, related to pre-audit refund, the document verification process is easier, by only conducting a simple administrative review.

However, it does not mean that the audit will not be conducted. It is only postponed after the pre-audit refund of tax overpayment is given. Therefore, it does not omit the consequence of administrative sanction in the form of 100% increase from the tax base if based on the audit result any tax underpayment is discovered. So, make sure that the bookkeeping and supporting evidences are complete when submitting a refund request. If the Taxpayer is not ready for audit, instead of getting tax refund, the Taxpayer will be subject to penalty.

The PMK also broadens the maximum limit of tax overpayment amount that can be given the pre-audit refund facility. For Individual Taxpayers running business or freelancers, the amount of tax overpayment that can be given the pre-audit refund facility is increased from previously IDR10 million at maximum to IDR100 million. Meanwhile, for Corporate Taxpayers, the amount of tax overpayment that can be given the pre-audit refund facility is of IDR1 billion at maximum, increasing from the previous amount that was only IDR100 million. Similarly, for PKP deemed bearing low risk, the amount of tax overpayment that can be given the pre-audit refund facility increases from previously IDR100 million to IDR1 billion at maximum.

Questioning Justice

The acceleration of tax refund shall be positively interpreted, not only by the Taxpayers but also by the tax officers. Not only reducing the burden of audit for the tax authority, the tax overpayment refund will also reduce the interest compensation to be paid by the Government to the Taxpayers.

Article 11 paragraph 3 of UU KUP asserts that: “If the refund of tax overpayment is made after 1 (one) month period, the Government shall pay interest of 2% (two percent) per month on any late refund…”

Furthermore, the regulation is confirmed in Article 17B paragraph 4 of UU KUP: “...the taxpayer shall be given interest compensation of 2% (two percent) per month for a period of 24 (twenty four) months at the maximum, starting from the date of expiration of the 12 (twelve) month period...”

Therefore, there is no excuse for the tax authority to postpone the pre-audit refund even though the justice side of such is still questionable. This is because the privilege seems to be given only for the selected Taxpayers or Golden Taxpayers.

Regarding the right, the refund acceleration is supposed to be applied systematically equal, without considering the status or track record of the Taxpayers. This is a “homework” for DGT to create a systematic and automatic refund procedure, without discriminating the recipient candidates.

Regarding the fake invoice manipulation and usage, they are in a different case. Such things are simply bad intention of certain Taxpayers to harm the State and categorized as criminal act and the tax authority shall act decisively. However, in the era e-tax invoice, the manipulating using fictitious tax invoices should be eliminated automatically. 

The State indeed has the authority to collect tax and to demand for the compliance to the Taxpayer. Yet, we need to keep in mind that the Taxpayers also have the rights to claim their overpaid tax or the tax that is not supposed to be paid. Those two rights shall be equally exercised if the tax authority does not want to be considered unfair.***

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