The Indonesian legal system is based on the civil law model. In Indonesia, all existing laws and regulations have been codified for the purposes of enforcement. The taxation laws of Indonesia are a subset of the national laws. Article 23A of the Constitution of the Republic of Indonesia of 1945 states that “taxes and other compulsory levies required for the needs of the state are to be regulated by law”.
Every taxation law in Indonesia explicitly states what is legally permitted with regard to taxation. Each taxation law is also related to further implementing regulations which may have been created by the government, Ministry of Finance, and Director General of Tax (DGT). Implementing regulations related to local taxes are found in the Regional Government Regulation as well as the Governor or Regency Head Regulation. DGT (circular) letters contain tax-related information which are not part of the official tax laws of Indonesia. However, most tax officials in Indonesia generally abide by the information stated in DGT letters.
Laws that Govern Taxation in Indonesia
Indonesian taxation laws are primarily based on Article 23A of the 1945 Indonesian Constitution. Article 23A states that tax is an enforceable contribution to be imposed on all Indonesian citizens, foreign nationals, and residents who have been residing in Indonesia for 183 cumulative days within a 12-month period or have been there for at least one day and have an intent to remain in Indonesia.
In most cases, those who are in Indonesia for fewer than 120 days over a 12-month period do not owe any tax money except for taxed imposed on income sourced from Indonesia. However, certain tax treaties may supersede this taxation. Tax treaties deal with taxation of foreign-sourced income for services provided in Indonesia. Such income is generally taxed if the related services have been performed for 120 days or more; however, the exact details of the applicable tax treaty will determine how the taxation will be imposed.
Indonesian laws regarding taxation may refer to income tax, local tax, or central government tax.
Indonesian Taxation Laws
The following are the most important taxation laws in Indonesia:
- General Provisions and Taxation Procedures Law “Undang-undang Ketentuan Umum dan Tatacara Perpajakan/UU KUP” Law No. 6/1983, amended by Law no.16/2009
- Income Tax Law (“Undang-undang Pajak Penghasilan/UU PPh”: Law Number 7 of 1983, amended by Law No. 17/2000; amended by law No 36/2008
- Value Added Tax VAT termed ‘Goods and Services and Sales Tax on Luxury Goods’ (“Undang-undang Pajak Pertambahan Nilai atas Barang dan Jasa dan Pajak Penjualan atas Barang Mewah”/UU PPN and PPn BM ): Law No. 8/1983, amended I by Law No. 11/2000, amended II by Law No. 18/2004, Last amended by Law No. 42/2009
- Land Tax and Building Tax (“Undang-undang Pajak Bumi dan Bangunan – UU PBB”): Law No. 12/1985 amended by Law No. 12/1994
- Warrant for Tax Collection (“Undang-undang Penagihan Pajak dengan Surat Paksa/UU PPSP”) Law No. 19/1997, amended by Law No. 19/2000
- Fees for Acquisition of Rights to Lands and Buildings (“Undang-undang Bea Perolehan Hak atas Tanah dan Bangunan/UU BPHTB”) Law No. 21/1997 amended by Law No. 20/2000. Not valid after Local Tax and User Charges Law is applied
- Tax Court Law (“Undang-undang Pengadilan Pajak/UU PP”): Law No. 14/2002
- Stamp Duty (“Undang-undang Bea Meterai/UU BM”) also known as Law Number 13 of 1985
- Local Tax and User Charges Law (“Undang-undang Pajak Daerah dan retribusi Daerah”) also known as Law Number 28 of 2009
According to Indonesia’s civil law system, the tax court is a branch of the administrative court. However, the tax court and administrative court are not one and the same; the two courts are separate. Many cases in the administrative court, however, are related to tax disputes. Tax disputes are defined as disputes related to taxation between the taxpayer and public officials with regard to a specific tax-related issue. Tax disputes are generally under the jurisdiction of the tax court. However, if the case has any indication of criminal activity, the case will be decided by the district court should any criminal proceedings be required.
Certain tax-related objections are to be brought before the administrative court instead of the tax court. These include objections to an asset’s revaluation, objections to a merger’s having been filed with a book value, objections to registration as a taxable entrepreneur, and objections to the regulations or policies of the tax office or the Directorate General of Tax.
Tax Crimes in Indonesia
There are many actions which violate the tax laws in Indonesia and are thus regarded as tax crimes. Such crimes include the failure to register for a taxpayer registration number (NPWP), the failure to report a business to be registered as a taxable entrepreneur (PKP), the misuse or unauthorized use of a NPWP or PKP, the failure to submit an SPT, the submission of an SPT with incorrect or incomplete information, the refusal of an examination to be conducted by the Directorate General of Tax, the provision of any official documents which have either been falsified or do not depict the actual condition of what has been described, the failure to maintain or provide any official documents (including documents which form the basis of books or records as well as any other documents; these may include data results that have been managed electronically or be accessible through the use of online application programmes), the failure to pay taxes, the payment of an inadequate amount of taxes to an extent which causes a significant financial loss to the government, the intentional issuance or use of a tax invoice or proof of payment of tax which is not based on an actual transaction, the issuance of a tax invoice by a person who has not been registered as a taxable entrepreneur, the refusal to provide a statement or evidence related to taxation, the provision a false statement or falsified evidence related to taxation, the intentional obstruction criminal tax investigations, and the refusal to fulfill tax obligations.
Punishments Imposed on Various Tax Crimes Committed in Indonesia
A person who has committed the offense of the misuse or unauthorized use of an NPWP or PKP, as well as those who have committed the offense of submitting a SPT with incorrect or incomplete information in order to receive excess money from the tax authorities in the form of unlawful tax compensation tax credit, can be imprisoned for a term lasting anywhere between six months and two years. Offenders may also be fined an amount of money totaling between two and four times the amount of excess money which had been claimed. Other tax offenses which have been committed in Indonesia will cause the guilty party to run the risk of imprisonment for anywhere between six months and six years. The offender may also be fined an amount of money totaling between two and four times the amount of tax payable. If a taxpayer has committed a criminal tax offense during the past year, the punishments may be increased to up to two times the original amounts. In such cases, any term of imprisonment imposed is to be calculated from the time the offender completed the initial prison term if one had been imposed for the previous offense).
Due to the severity of the punishments imposed for tax crimes committed in Indonesia, you might be somewhat apprehensive with regard to the handling of your own taxes in Indonesia. Fortunately for you, we at Paul Hype Page & Co will ensure that such is never a problem for you. Our tax staff will work with you to ensure that all of your tax obligations in Indonesia are appropriately fulfilled. We will see to it that you do not violate any of the country’s tax laws, whether deliberately or otherwise.
Paul Hype Page & Co. will give you more information and assistance on policy updates, compliance regulations and changes to tax conditions. Corporate tax in Indonesia.
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DPJ (Directorate General of Taxes) governs Indonesia’s tax system, helps develop a stronger economy, better environment and a more vibrant economy. All companies, regardless of industry, have a legal duty to pay taxes.
Indonesia attracts investments from around the world by reducing its corporate income tax rate and introducing different tax incentives. Indonesia has one of the lowest corporate tax rates in the world.
As your company’s Tax agent, Paul Hype Page & Co Chartered Accountant will be fully responsible for the practice of ensuring that these conditions are met. It is important that we be highly qualified and well versed in local regulations and corporate laws, as we are responsible for the upkeep of important company files, tax reports and tax records.