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:
Then, the valuation of tangible assets, intangible assets, and taxpayer business includes:
- The value of compensation in the form of Benefit in Kind (BiK) or fringe benefit (Article 4 (1) letter a of Income Tax Law).
- 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).
- 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).
- 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).
- 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).
- 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).
- The acquisition price or residual book value of tangible assets affects the amount of depreciation expense (Article 11 of the Income Tax Law).
- The acquisition price or residual book value of intangible assets affects the amount of amortization expense (Article 11A of the Income Tax Law).
- Value to redetermine the amount of income and deduction, and debt as capital (Article 18 (3) of the Income Tax Law).
- 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).
- The fair value of assets in the event of a mismatch of cost elements with income (Article 19 of the Income Tax Law).
- 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).
- 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).
- 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).
- 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).
- The limit price for the sale of confiscated goods by auction (Article 2(3) of Tax Collection by Forced Letters (PPSP Law)
- Value of seized goods (Article 14(2) of the PPSP Law).
- 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:
- Calculation of tax payable in analysis or research in the context of supervision;
- Calculation of tax payable in testing in the context of audit;
- Determination of reasonable transfer price when a mutual agreement procedure is conducted;
- Determination of the fair transfer price when a transfer price agreement is made;
- Calculation of tax payable in the context of objection settlement;
- Calculation of tax payable in the context of settlement of application for reduction or cancellation of tax assessment;
- 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;
- Calculation of losses to state revenue during the examination of preliminary evidence; and
- Calculation and recovery of losses to state revenue during an investigation.
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.
Preparing assessment materials
Collection of objects and supporting data for the assessment
Data related to the determination of the NJOP L&B Tax, including:
Data related to tangible asset valuation includes:
Data related to intangible assets, including:
The Analysis of the object and supporting data analysis of the assessment
Data analysis related to the NJOP Assessment includes:
Data analysis related to tangible, intangible, and business assets includes:
Application of the right valuation approach
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)