Through PMK 79/2023, DGT Can Appraise NJOP of L&B tax, Taxpayer's Assets and Businesses

Through Minister of Finance Regulation (PMK) Number 79 of 2023, the Directorate General of Taxes (DGT) is authorized to conduct an appraisal for tax purposes, on taxpayer assets, business value, and determination of sales value of the taxable object (NJOP) for land and building tax (L&B Tax). 

In its consideration, this regulation is issued to provide justice and legal certainty. Especially, in the context of valuation in the field of income tax, Value Added Tax (VAT), and L&B Tax. Including, for the purpose of billing with a forced letter.

Assessment of L&B Tax Objects

DGT can assess L&B Tax objects in the current year or several previous years through two mechanisms, namely office assessment and field assessment. 

Office assessment is conducted through activities to analyze L&B Tax object data, to issue a notification of tax payable (SPPT), based on data or information in the notification of tax objects (SPOP) submitted by the taxpayer.

Then, field assessment is conducted through a series of activities such as identifying, collecting, and analyzing data related to the L&B Tax object. 

The field assessment can be carried out in the context of supervision, audit, settlement of objections, reduction of incorrect L&B Tax assessment, and examination of preliminary evidence to investigation.

The results of the assessment then become the basis for calculating the L&B Tax payable as stated in: 

a. SPPT of L&B Tax based on SPOP submitted by the taxpayer during supervision;
b. L&B Tax assessment letter at the time of audit;
c. Objection decision letter on the settlement of L&B Tax objection;
d. Decision letter on reduction of incorrect L&B Tax assessment in the settlement of application for reduction of incorrect L&B Tax assessment;
e. Calculation of losses to state revenue during the examination of preliminary evidence; and
f. Calculation and recovery of losses to state revenue during investigation.

Assessment of Taxpayer's Assets and Business

DGT may conduct an assessment of tangible assets, intangible assets, and taxpayer's business every one or several tax periods, parts of the tax year, or tax year. The assessment mechanism can be done by means of office assessment or field assessment.

The object of assessment of tangible, intangible assets and taxpayer business is carried out on:

Tangible Asset	Intangible Asset	Business Value
Land and/ or water; Building; Machinery and/ or equipment including installations; Transportation equipment, heavy equipment, or vehicles; Building equipment and fixtures; Furniture, electronic devices, medical devices, and laboratory equipment and utilities; Communication and telecommunication equipment; Art and jewelry; and Biological asset.	Marketing-related intangible assets; Art-related intangible assets; Intangible assets related to company contracts; Technology-related intangible asset; Intangible assets related to research and development processes; and  Goodwill.	business entity; investments in companies; financial instruments in public or private companies; and the reasonableness of the accounting accounts contained in the financial statements.

Then, the valuation of tangible assets, intangible assets, and taxpayer business includes:

1. The value of compensation in the form of Benefit in Kind (BiK) or fringe benefit (Article 4 (1) letter a of Income Tax Law).
2. Income from property transfer transactions on land or buildings, construction services business, real estate business and rental of land or buildings is subject to final income tax (Article 4 (2) letter d of the Income Tax Law).
3. The acquisition price or sales price of assets that is affected by a special relationship is the amount that should have been incurred or received based on the market price (Article 10 (1) of the Income Tax Law).
4. The acquisition value or sales value in the event of an exchange of assets is the amount that should have been incurred or received based on the market price (Article 10(2) of the Income Tax Law).
5. The acquisition or transfer value of assets in the context of liquidation, merger, consolidation, expansion, division, or business takeover. Namely the amount that should be incurred or received based on market prices (Article 10 (3) of the Income Tax Law).
6. The basis for the transfer of assets is the residual book value or the value determined by the Director General of Taxes, or the market value of the assets (Articles 10(4) and (5) of the Income Tax Law).
7. The acquisition price or residual book value of tangible assets affects the amount of depreciation expense (Article 11 of the Income Tax Law).
8. The acquisition price or residual book value of intangible assets affects the amount of amortization expense (Article 11A of the Income Tax Law).
9. Value to redetermine the amount of income and deduction, and debt as capital (Article 18 (3) of the Income Tax Law).
10. Transaction price between parties that have a special relationship in conducting agreements with taxpayers and cooperating with the tax authorities of other countries (Article 18 (3a) of the Income Tax Law).
11. The fair value of assets in the event of a mismatch of cost elements with income (Article 19 of the Income Tax Law).
12. The fair market value of taxable goods in the form of inventories or assets that, according to their original purpose, are not for sale, which remain at the time of dissolution of the Company (Article 1A (1) letter e of the VAT Law).
13. The selling or replacement price is calculated based on the fair market price in the case of being affected by a special relationship (Article 2 (1) of the VAT Law).
14. The value of self-construction activities is the amount of costs incurred or paid for self-construction, as the tax base (Article 16C of the VAT Law). 
15. The market price for the transfer of taxable goods in the form of assets that, according to the original purpose, are not intended for sale by VAT-Registered Persons (Article 16D of the VAT Law).
16. The limit price for the sale of confiscated goods by auction (Article 2(3) of Tax Collection by Forced Letters (PPSP Law) 
17. Value of seized goods (Article 14(2) of the PPSP Law).
18. Selling price for confiscated goods whose sale is exempted from sale by auction (Article 25(2) of the PPSP Law).

The Utility of Taxpayer's Assets and Business Valuation

Furthermore, the result of the assessment conducted by DGT will be used as the basis:

1. Calculation of tax payable in analysis or research in the context of supervision;
2. Calculation of tax payable in testing in the context of audit;
3. Determination of reasonable transfer price when a mutual agreement procedure is conducted; 
4. Determination of the fair transfer price when a transfer price agreement is made;
5. Calculation of tax payable in the context of objection settlement;
6. Calculation of tax payable in the context of settlement of application for reduction or cancellation of tax assessment;
7. Determination of the collateral value of tangible assets, the value of seized goods, the limit price, and the selling price for confiscated goods whose sales are exempted from sale by auction during collection;
8. Calculation of losses to state revenue during the examination of preliminary evidence; and
9. Calculation and recovery of losses to state revenue during an investigation.

Appraisal Procedure

In general, the assessment is conducted by the assessment team and is only carried out based on the assessment warrant stipulated by the DGT. The appraisal activities consist of five series starting with preparing appraisal materials, collecting data, conducting data analysis, applying an appraisal approach that is in accordance with the object being appraised, and preparing an appraisal report.

No	Stage	Description
1	Preparing assessment materials	Includes: Collection of basic documents for the Assessment assignment; Collection of plan and assessment program documents; and/or Preparing the necessary facilities and infrastructure.
2	Collection of objects and supporting data for the assessment	Data related to the determination of the NJOP L&B Tax, including: Data stated in the SPOP; and Data on property bids/transactions, unit prices of wages and building materials, selling prices of forest product commodities, benchmark prices of mining products, selling prices of capture fishery products, and selling prices of aquaculture business products.
		Data related to tangible asset valuation includes: General data (social, economic, government policy, regional or environmental data); Demand and supply data on sales data of similar objects, availability of the number of properties, development plans, rental rates, occupancy rates, community income levels, comparable object transactions, offers, and related industry data; Data on the object of valuation, consisting of ownership status, transaction or acquisition price of the object of valuation, use of the object, historical financial statements, sales or income, rental prices, operating costs, object condition, and object specifications.
		Data related to intangible assets, including: Macroeconomic data: economic outlook, inflation rate, risk-free interest rate, debt interest rate, country risk premium, credit default spread, currency exchange rate, gross domestic product and economic growth; Industry sector data: systematic risk, market risk, comparable company data, similar account markets, sectoral growth, equity premium industry, royalty rate industry, similar property transaction or offering data, industry debt-equity ratio, similar industry revenue, and similar financial instrument markets; Valuation object data, in the form of: Ownership status, historical financial statements, sales or revenue data, company contracts, company technology, human resources, prospective financial information, transaction data or acquisition price of the object of valuation, transaction documents of utilization or use of intangible assets, financial statements of the entity of the object of valuation and the entity of the object of comparison, or details of direct and indirect costs, for the valuation of intangible assets. Financial statements, an overview of financial statements, projections of financial statements, historical financial statements, asset specification data on accounting accounts tested for reasonableness of value, detailed data on company assets, prospective financial information, establishment and changes in company ownership, share transfer transactions or corporate actions, and proof of ownership of financial instruments, for business valuation.
3	The Analysis of the object and supporting data analysis of the assessment	Data analysis related to the NJOP Assessment includes: analysis of earth surface data; analysis of earth body data; and/or analysis of building data.
		Data analysis related to tangible, intangible, and business assets includes: Analysis of property market data or highest and best use, for Valuation to determine the value of tangible property; and Analysis of macroeconomic data relevant to the object of the Assessment, analysis of industry sector data, analysis of financial statements, analysis of financial statement projections, and/or analysis of data on the object of the Assessment, related to the assessment to determine the value of intangible assets and the Assessment to determine the value of the business.
4	Application of the right valuation approach	The valuation approach to determine the NJOP L&B Tax, follows the provisions of the Ministerial Regulation governing the classification of tax objects and the procedures for determining the NJOP L&B Tax. The valuation approach determines the value of tangible assets and intangible assets, including the market approach, income approach, and cost approach. Valuation approach to determine the business value, including market approach, income approach, and asset approach.
5	Compiling an assessment report	The appraisal team must compile an appraisal report based on the appraisal working paper made on the basis of the implementation of the appraisal activities. If no conclusion of value is obtained, the Appraisal team shall make an Appraisal Report that terminates the Appraisal without any conclusion of value on the Appraisal object.

In detail, the valuation approach used to determine the value of tangible assets, intangible assets, and business value is contained in the appendix of the regulation promulgated on 24 August 2023 and effective 30 days afterward. (ASP/KEN)