Taxpayers who book losses domestically can compensate for the losses against fiscal profits in the coming year. Thus, the income tax payable by taxpayers could be lower than it should be.
Provisions regarding loss compensation are regulated in Article 6 paragraph (2) of the Income Tax Law. The regulation states that losses experienced by taxpayers can be compensated for up to the next five tax years, consecutively.
The loss compensation process is actually simple. Starting when the taxpayer's Annual Income Tax Return (SPT) records a loss, the loss value can be deducted from the fiscal profit that occurs in the following tax year.
Then if the loss value turns out to be still higher than the profit incurred, then the difference or the remaining loss value can be compensated to the next year's fiscal profit again, a maximum of up to five tax years.
Based on SKP or Tax Return
Problems arise when the Directorate General of Taxes (DGT) corrects the fiscal loss claimed by taxpayers. Thus, the value of losses in the Annual Tax Return will be different from the calculations according to the DGT as stated in the Tax Assessment Letter (SKP).
For example, in 2021 taxpayers recorded a loss which was then corrected by the DGT. To this correction, the taxpayer filed an objection by maintaining the loss value recorded in the Annual Tax Return.
Indeed, taxpayers actually entitled to compensate for these losses against fiscal profit for 2022. However, because a dispute arose over this correction, the decision to provide compensation was not simple.
There are at least three options for taxpayers whose fiscal losses are corrected by the DGT. First, continue to compensate for losses in the 2022 tax year using the value of the 2021 Annual Tax Return. Second, approve the results of the DGT's correction by amending the Annual Tax Return stating a fiscal loss.
Third, wait for the dispute resolution process with the DGT in the event that the taxpayer disagrees with the DGT's correction and submits legal remedies such as an objection or even an appeal.
The safest thing is actually to agree with the results of the DGT's correction. However, the implication may be that the fiscal loss previously claimed in the Tax Return could be smaller or may even turn into a profit, depending on the DGT's decision.
Or if objected, taxpayers can still compensate for losses using the figures in the Annual Tax Return. Consequently, when the Tax Court's decision is the same as the DGT's correction value, the DGT will also correct the value of the tax payable in 2022 which has been reduced by loss compensation.
However, if taking the first option, namely by using compensation for audit losses and waiting for the final decision, then the taxpayer risks not being able to utilize fiscal compensation in the following tax year. Moreover, if the dispute resolution process continues to the lawsuit stage at the Tax Court, the time required will not be short. Apart from that, after the incracht (permanent legal force) verdict, taxpayers also have to correct their annual tax returns.
Corrections When Loss Compensation is Made
Another problem that often arises is when the DGT also audits the annual Tax Return when the taxpayer compensates for losses. For example, apart from correcting the fiscal loss in 2021, the DGT will also carry out audits and issue SKPs for the 2022 Annual Tax Return.
So, when the dispute over the correction for the 2021 tax year is incracht, taxpayers have difficulty correcting the Tax Return for the 2022 Tax Year. According to regulations, taxpayers can only correct the Tax Return due to changes in fiscal losses, as long as an audit has not been carried out.
The solution available if this condition occurs is, in order to still be able to take advantage of the fiscal loss, the taxpayer can apply for a correction to the SKP. This is in accordance with the provisions regulated in Article 16 paragraph (1) of the Law on General Provisions and Tax Procedures (KUP).
The regulation states in full that the DGT can correct SKPs and other legal products if there are typographical errors, miscalculations, and/or errors in the application of tax provisions. However, usually, the DGT will not accept the request for correction, on the grounds that the Annual Tax Return being audited is correct and in accordance with procedures.
Regulatory Issues
This issue arises for two reasons, firstly because the regulations governing loss compensation are not yet completely clear.
In terms of regulation, there is no provision that specifically regulates how taxpayers can utilize loss compensation resulting from tax assessment or appeal decisions with different fiscal loss figures.
On the other hand, the Annual Tax Return after the tax year in which the fiscal loss occurred has already been audited. Therefore, the writer suggests that to prevent disputes like this from recurring, the government should make more specific rules.
Second, the problem that often occurs is the difference in interpretation between taxpayers and DGT. Especially in reading the provisions regarding the correction of SKP as stipulated in Article 16 of the KUP Law.
According to taxpayers, SKP can be corrected due to miscalculations or errors in applying tax regulations. Meanwhile, according to the DGT, differences in the value of loss compensation are not included in the definition of miscalculations and/or errors in applying tax regulations.
In fact, Article 3 paragraph (3) letter g of the Minister of Finance Regulation Number 11/PMK.03/2013 explicitly states that the scope of Tax Return correction includes writing errors, calculation errors, and errors in the application of rules.
The calculation errors referred to include errors originating from the addition, subtraction, multiplication, or division of a number and/or as a result of the issuance of tax assessment letters, tax bills, taxation-related decisions, appeal decisions, or judicial review decisions.
If not resolved immediately, this issue will continue to recur. If that happens, it will have an impact on both taxpayers and DGT. Taxpayers will lose the opportunity to utilize the fiscal loss compensation facility. In addition, taxpayers' time and focus will also be diverted to resolve disputes in the Tax Court. (ASP/KEN)
