Regulation Update

Tax Audit Trend for Year 2012

Tax Audit Trend for Year 2012

Director General of Taxes NumberSE - 07/PJ/2012

As one of the law enforcement mechanism on the self assessment system, DGT is mandated to manage the source of fund from tax sector. For year 2012, the national tax revenue is targeted to reach up to IDR 13,300,000,000,000 (thirteen trillion and three hundred billion rupiah), compared to the target in previous year which is only up to IDR 9 trillion. To achieve the target, DGT is supported by a comprehensive series of tax plan and strategy, including tax audits.

As  one of the functions of law enforcement upon the self assessment system, tax audits activities shall be well-planned, professional, complying with the prevailing regulations, based on certain focus and strategy, and creating a deterrent effect.According to Circular of Director General of Taxes No. SE - 07/PJ/2012, the tax audit for year 2012 are divided into two groups, namely tax audits for evaluating the tax compliance, and tax audit for other purposes related to the implementation of the tax regulations. 

Tax Audit for Tax Compliance Evaluation 

It deals with tax returns of taxpayers who meet the criteria of routine and special tax audits. The completion of the tax audit process will be indicated with the issuance of a tax assessment notice or SKP (Tax Underpayment Assessment Notice/SKPKB, Additional Tax Underpayment Assessment Notice /SKPKBT, Nil Tax Assessment Notice/SKPN, Tax Overpayment Assessment Notice/SKPLB) and Tax Collection Letter /STP). This type of tax audit has been considered as the backbone of the State tax revenue for year to year.

Target of Tax Audit

Speaking of tax audit completion, the DGT has set out the priority scale on hundreds of tax audit cases which is structured below:  

1. Regular Audit on Refund of Overpayment Tax Return and its expansion having a compensation effect  

2. Regular Audit on Compensation of Overpayment Tax Return whose assessment notice issuance period is going to elapse  

3. Special Audit having potential significant revenue  

4. Regular Audit related to Individual Taxpayers leaving Indonesia for good

5. Regular Audit related to Corporate Taxpayers conducting merger, business coalition, business expansion, business spin off, and liquidation/business dissolution; and  

6. Regular Audit upon Annual Income Tax Returns stating loss with no overpayment having potential significant revenue, with the following conditions:  

a. Having significant transactions with affiliated parties;         

b. Having a compensation effect in the following tax years; or         

c. Having loss for 3 (three) respective years or more. For corporate taxpayers, these are sectors as the main target of the 2012 tax audit:

For individual taxpayers, professionals (tax consultants, lawyer/advocates, and notaries) are still the focus of tax audit as the previous year. The list of individual taxpayer target also includes any individuals having relation with corporate taxpayers under after tax audits.  

In addition to the above corporate and individual targets, the national scope target of the 2012 Tax Audit are also the following:

1. Taxpayers having received initial returns on tax overpayment as mentioned in Article 17C of the General Provision and Tax Procedures Law (KUP Law); or

2. Low risk VAT Registered Person having received initial returns upon tax overpayment as mentioned in Article 9 paragraph (4c) of the VAT and Sales Tax on Luxury Goods Law (VAT Law).

Special Tax Audit 

The provision of special audit, among others, requires Tax Auditor Units (UP2) in Large Tax Offices, Special Tax Offices, and Medium (Madya) Tax Offices, to submit a minimum of five proposals of Special Tax Audit related to transfer pricing transactions. From the proposals submitted, each UP2 shall conduct the tax audits with the following requirements:

a. At least 3 (three) Special Audits for UP2 in Large Tax Offices and Special Tax Offices; and  

b. At least 1 (one) Special Audit for Medium Tax Offices.  

For any corrections to tax objects in relation with transfer pricing transactions of IDR 50,000,000,000.00 (fifty billion rupiah) or more, the Transfer Pricing Audit Quality Control Team shall be engaged as stipulated in the Decision of Director General of Taxes Number KEP-120/PJ/2011 and its amendment.  

Particularly for taxpayers engaging in export and/or import of goods and/or service, DGT shall jointly with the Director General of Customs and Duty to conducts the tax audits.

Tax Audit for Other Purpose in order to fulfill the Provision of Tax Regulation    

This kind of tax audit carries out the regulatory function of DGT, where it is conducted to implement certain provisions in the tax regulations. The most distinctive characteristic is that it is not intended for issuance of Tax Assessment Notice or Tax Collection Letter. For year 2012, the strategy for such audit is, among others, as follows:  

1. It is performed by Functional Tax Auditors.  

2. If required, the Head of UP2 can further establish a special task force (Satgas Pemeriksaan Tujuan Lain)  

3. The completion priority are for:        

a. Cases with time limits as determined in Audit Instruction Letters;        

b. Cases of issuance/revocation of Taxpayer ID, and registration/annulment as VAT Registered Person; and        

c. Cases related to certain purposes other than mentioned in letter a and b.

1. Cases related to certain purposes other than mentioned in letter a and b.