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Tax Collection Enforcement in Indonesia during Objection and Appeal Stage

1. INTRODUCTION
Formal tax assessment notice issued by Directorate General of Taxes as a result of
examination should be paid at the latest 1 month from the date of notice. The submitted of the
objection notice do not postpone the collection of the deficiency tax liability inclusive penalties
by Directorate General of Taxes. The reason behind “the presumption of innocence” is based on
commentary in General Tax Law Provisions which is mentioned that to prevent frivolous disputes
by taxpayers. Additionally, the tax tribunal requires the taxpayers to pay 50% of the tax
assessment.Failure to do so, will result the appeal will automatically been rejected. Finally, the
worst situation for the taxpayers not paid the tax that is still under dispute is that they may have
hostage taking in jail.
2. JUSTICE, PRESUMPTION OF INNOCENCE, AND CHEAP TRIAL PROCESS
Considering Number c of Tax Tribunal Law No. 14/ 2002 specifically mentioned that the
increase in the number of taxpayers and better understanding of taxpayers about their rights and
obligations in implementing taxation laws cannot avoid the occurrence of tax disputes that need
fair settlement through fast, cheap and simple procedures and processes. Unfortunately, the fair
settlement through cheap process that is the objective of the tax tribunal is difficult to be
achieved, if the case involved with substantial amount. Hence, the requirement payment 50% of
tax assessment notice for the case to be heard by the tax tribunal may restrict taxpayers to have
fair trial. Moreover, the commentary mentioned that this rules to prevent the taxpayers to do
frivolous dispute is in the author opinion contrary to the “presumption of innocence”.

3. INDONESIA TAX TRIBUNAL DECISIONS
From year 1993-1997, Indonesia Tax Tribunal (Majelis Pertimbangan Pajak) issued
decisions that only 17% of the tax assessment noticed declared by the tax authorities is valid.
Moreover, the fact that in the last seven years tax tribunal decision is more favorable to the
taxpayers, the rules about the requirement to pay the disputing assessed tax remain unchanged.

offer some remedy. Indonesia Member of Parliament who is Leader in Tax Committee also mentioned that the requirement to pay 50% tax is still under disputed is a burden to taxpayers if Directorate General of Taxes issued serious erroneously tax notice assessment with substantial amount.7) 503 (27.6) 118 (18.2) 2000 549 (36.7) 249 (39.4) 2001 232 (43. The above data is not included appeal noticed submitted by taxpayers that is not processed further by tax tribunal because of formality matters (for example because of not paid the requirement 50% from the total assessment still under disputed or the appeal notice is submitted more than 3 months as requires by the law-author) 2. this will make serious cash flow problems for entrepreneur.6) 941 (51. indeed. the requirement that the tax be paid for appeals to be heard may in some cases mean a denial of basic rights. and on the other hand the obligation to pay tax for appeals to be heard.7) 1999 905 (36.2) Source: Indonesia Tax Tribunal Note: 1. 4.Table 1 Tax Tribunal DDecisions Neutral Taxpayers Win Decisions Tax Authorities Year (%) (%) Win (%) 1998 375 (20.9) 616 (25. 5.6) 159 (24.6) 216 (36. Included municipal and custom/excise tax case law. provided that interest is payable once the decision is final. The requirement to paid the 50% tax assessment will make the entrepreneurs do not want to bring the case to the tax tribunal.8) 215 (40. and most countries do. Data 1999 and 1998. TAX COLLECTION ENFORCEMENT IN THE OTHER COUNTRIES AND ACADEMICS POINT OF VIEW According to Leif Muten.9) 928 (37.2) 148 (15.7) 2003 267 (41. The obligation to pay before the tax is final may likewise implies a hardship. In addition.6) 2002 263 (41. He is also noted that it is important to see the distinction between on the one hand the obligation to pay tax even on the basis of a decision that is not final. . A taxpayer may be allowed to postpone payment while appeals are being heard.6) 82 (15. Finally.6) 403 (41. CRITICS AGAINST THE MANDATORY PAYMENT FOR TAX ASSESSMENT IS STILL UNDER DISPUTED Secretary General to Indonesia Business Entrepreneur (Apindo) critics the mandatory payment 50% for case to be heard in the tax tribunal.6) 510 (34. Indonesia Business Chambers already propose to reduce the requirement from 50% to 5%. namely.8) 2004 426 (43. he suggested that the requirement should be eliminated in the future tax law reform. A deferral of payment may be granted when the outcome of the appeals procedure is difficult to predict. Moreover.0) 440 (29. when the taxpayers does not have the means to pay an erroneously assessed tax.

Other impose it to discourage frivolous disputes. a suspension of payment) but such holdover are at the discretion of the tax authorities and are rarely granted. If the payment of the tax would lead to substantial damage for the taxpayer or would otherwise be unreasonable. In Canada. or 2. Whether the outcome of the case is uncertain. the tax reserve certificates will be redeemed with interest. Another possibility is require payment a portion of the tax. interest at the rate of 6% per year is levied for the time of postponement. If the litigation takes place in the U. if taxpayer has filed an appeal against an assessment. taxpayers are only required to pay the tax that is not disputed or already agreed by taxpayers and tax authorities. Some consider it unfair to impose such a requirement. An intermediate position would be to allow tax authorities or the court to require payment on case-by-case basis. based on Internal Revenue Code (IRC No 6213). In Hong-Kong. Philippines. If the assessment proves to be correct. the amount of tax dispute does not have to be paid until the dispute is finally resolved. In Germany. except for certain large corporation. Countries differ on whether taxpayers are required to pay any tax subject to dispute in order to pursue a dispute. In Belgium. Iran only requires taxpayers to provide 5% cash deposits from the tax assessment still under disputed as a requirement the appeal will be processed by First Board of Settlement of Tax Disputes (FBSTD). If it loses. In Sweden. If the final decision more favorable to taxpayers. In Australia. Taxpayers in Brazil should provide cash deposit 30% from the tax still under disputed to tax authorities. Spain provide alternative for the suspension of collection enforcement during the appeal process to tax tribunal by way of bank guarantee based on Article 74-77 EconomicAdministrative Complaints Procedure Regulations. the assessed tax payment may be postponed provided there is substantial doubt on the correctness of assessment. It does not in OECD countries. There is also the possibility of purchasing so-called tax liability. There is possibility of obtaining a holdover of the tax payable (i. . the taxpayers does not need to pay until the case is resolved. then the taxpayers may claim the cost incurred related to bank guarantee and any other guarantee to suspense the enforcement collection from the tax assessment notice. then 100% value of the properties should be provided as a guarantee. If taxpayers provide real properties guarantee. the taxpayers will get an extension of time to pay additional tax depends upon: 1.S ta court. the commencement of an appeal does not suspend the obligation to pay the tax in dispute but generally the Australian Taxation Office will suspend recovery proceedings while an appeal is under way (often on condition of payment of a proportion of the tax in dispute). tax that has been assessed must be paid up-front even if the taxpayer has engaged an appeal against an assessment. the tax reserve certificates will be appropriated by thje tax authorities but the taxpayer will not be liable for further interest in respect of the outstanding tax liability to the extent of the amount of the tax reserve certificates.e.An important aspect of litigation is whether tas has to be paid pending appeal. If the taxpayer ends up being successful in its appeal. are bond-like instruments kept by the tax authorities until resolution of a matter. Bangladesh.

regulated and expressed in the laws” 4. the taxpayer must pay a delinquency tax. the mandatory requirement is to pay 100% the tax . Moreover. protection and fair legal certainty as well as equal treatment before the law” 3. most taxpayers pay the deficiency amount by the due date of the notice. the property cannot be converted into money until the case is settled. The taxpayer argued that article 36(4) Tax Tribunal Law is contrary to: 1. See Administrative Lawsuit Law. unless the value of property may decrease or the taxpayers prefer the conversion. the tax office reviewing the taxpayer’s objections or the National Tax Tribunal reviewing the appeals can defer or suspend collection of all or part of a tax deficiency in dispute if the deferral or suspension is necessary. in that regard. 6. Article 27 (1) Indonesia Constitutional Law 1945: “Without any exception. See General Law of National Tax. If tax authorities attach their property. security and public order in a democratic society” On the other hand. Human Right that ruled in Article 28 D (1) Indonesia Constitutional Law 1945: “Everyone shall reserve the right for recognition. equal to 7. the exercise of human rights shall be guaranteed. article 27. According to the advocate of taxpayer this was considered as burdensome as it could disrupt a company’s cash flow and contrary to presumption of innocence. If a taxpayer loses a case. To avoid the risk of paying the enormous delinquency tax. If a taxpayer wins a case. guarantee. Article 28 J (1) and (2): “Everyone shall be obligated to respect the human rights of the other people in the orderliness of the lives of the community. taxpayers must pay the deficiency amount due. everyone shall be obligated to be subject to the limitation stipulated in the law with a view solely to guaranteeing the recognition of and respect for rights and freedom of other people and to fulfill a just demand in accordance with the consideration of morality. however. 14/2002 is better than previous one. for more on that point. which is one month after the issuance of the notice.6 percent per annum thereafter until the deficiency is paid full. article 105. Article 28 I (5): “To uphold and protect human rights in accordance with the principle of a democratic lawbased state. The court can suspend the execution of a tax deficiency notice according to ataxpayer’s request if such suspension is urgently needed so that the taxpayer won’t suffer unrecoverable damage resulting from the execution of the notice. regardless of the filing of administrative grievances or suits. In the previous law. partially or totally.3 percent per annum. religious values. with interest at 7. and 14.In Japan.3 percent per annum. in view of the Ministry of Finance the tax tribunal law No. THE QUESTION ABOUT THE CONSTITUTIONALITY OF THE PROVISIONS TO PAY 50% OF DISPUTING TAX ASSESSED There is one leading case challengge the constitutionality of tax tribunal law article 36(4) regarding the mandatory requirment to paid 50% of the assessed tax notice issued by Directorate General of Taxes. any overpaid tax is refunded. the nation and the state” “In exercising their right and freedom. all citizens shall have equal positions in Law and Government and shall be obliged to uphold that Law and Government” 2. for two months from the due date of the notice.

If there is no restriction. we conclude those countries differ on whether taxpayers are required to pay any tax subject to dispute. Moreover.g. 50%). The consideration as follows: Article 36(4) is not contrary to the presumption of innocence. Others impose it to discourage frivolous disputes. then the government will return the 50% that already paid and provide additional interest 2%/month as compensation. then the tax tribunal will be overwhelmed to handle the case and to ensure the inflow of state revenue from taxes. if the administrations is mistaken. the presumption of innocence is not relevant to the tax tribunal. and do not give certainty and protection by law to taxpayers. CONCLUSION AND SUGGESTION Based on the facts above. The Constitutional Court decides that requirement to pay 50% of the disputing tax assessed is not contrary to Indonesia Constitutional Law 1945. because if the disputing tax assessed involved substantial amount. If the decisions are fully favorable to the taxpayers. perhaps at high interest rates. In exteme cases. then the 50% of the disputing tax assessed already paid will be fully return plus additional interest 2% /month. What they need is not the interest as compensation. On the other hand. In the author opinion that is in contrast to Indonesian Constitutional Court decision. undemocratic. the justice and certainty. if the taxpayers have an option by the law.. .assessment under dispute. the mandatory requirement 50% payment of disputing tax assessed is without considering any evidence provided by taxpayers. then the taxpayers who do not have enough money to bring the case to the court will be in unfavorable position. Hence. Expert witness gives his opinion in the court that Article 36(4) Tax Tribunal Law is contrary to the presumption of innocence and protection of human rights because the mandatory payment 50% of disputing tax assessed should be done before final judgment provided by the court. An intermediate position would be to allow tax authorities or the court to require payment on a case-by-case basis. The requirement to pay 50% is not based on penalty or criminal punishment. Based on teh above provisions the taxpayer argued that article 36(4) Tax Ttibunal Law is contrary to presumption of innocence and human rights. but. The reason is simple. the taxpayer may be unable to contest the assessment at all. Directorate General of Taxes mentioned that if the taxpayers win the case. Moreover. to determine the implementation of tax law is already correct. 7. but as a partial payment of the taxpayer liabilities and as a formal requirement rights to appeal. Another possibilityis to require payment a portion of the tax (e. however. Three of seven judges said in their dissenting opinion that the obligation for taxpayers to pay 50% of arrears before going to the tax tribunal has denied them the right of getting court justice and defending themselves against possible mistakes made by the tax officials. Some consider it is unfair to impose such requirement. they would not to pay 50% of disputing tax assessment rather than receive the interest compensation. such a rule can unfairly enforce to the taxpayer to borrow substantial amounts. and put the taxpayer in financial jeopardy even if the administration must eventually pay interest to the taxpayer on overpayment. in order to pursue a dispute. Tax Tribunal is not Criminal Tribunal made a decision that a person is guilty or not guilty that is ruled by Criminal Law.

If this rule is unchanged in the future. there might be another effort by taxpayers or academics to bring again the requirement to pay the disputing tax assessed to Constitutional Court with other arguments and evidences.Considering the result of Tax Tribunal decisions. . Indonesia Member of Parliament in the future tax reform should reconsider the requirement to pay the 50% of disputing tax assessed in the tax court.