Great Opportunity Not To Be Missed!(逃してはならない重要な時!)

To error is human, God is defined. This proverb is unarguable for sure, especially if speaking of taxpayers. It is the fact that almost none of taxpayers has never made mistakes in terms of performing their tax right and obligations. Finally, in this very year some of them may find themselves a quite relieved pursuant to the validation of the newly limited tax amnesty.

In accommodating the inspiration of most taxpayers as well as increasing the state tax revenue, since 2008 the Government offers one of tax amnesty through Article 37A of Law No. 28 Year 2007 concerning General Tax Provisions and Procedures Law (2007 KUP Law). This tax amnesty popularly known as sunset policy is addressed to every taxpayer or future taxpayer who in this year 2008 voluntarily declares their past time blunders.

As referred to in the article of the 2007 KUP Law, Government Regulation No. 80 year 2007, and Announcement of Director General of Taxes Number PENG-02/PJ.09/2008, government grant as follows:

  • Annulment or reduction upon late payment of underpaid taxes made by existing taxpayers due to self revision to Annual Income Tax Return for tax year 2006 and the previous years resulting in tax underpayment;
  • Annulment upon unpaid/underpaid tax from the tax years for new individual taxpayers before they obtained their Tax ID number.

The above annulments could only be granted to the taxpayers with certain requirements that should be fulfilled.

Upon late payment of underpaid taxes due to revision of the tax returns, the annulment will be given only if the revision is made not later than 31 December 2008. Meanwhile, for the new taxpayers, the annulment is only given if individual register for acquiring Tax ID number at the latest on 31 December 2008 and submit their 2007 Income Tax Return and other tax returns from the previous tax years at the latest on 31 March 2009. The annulment also requires the data/information confirming that the tax returns submitted are true and not in overpaid balance. In addition to the annulment of interest sanction upon new taxpayers, no tax audits will be conducted on the tax obligation from the related tax years reported.

Revision of Tax Return

納税申告の修正

Making revision to Income Tax Return of tax year 2006 and the previous years can be a good step for cost efficiency purposes. Why not? The taxpayers may not only be free from interest sanction due to tax underpayment but also free from interest sanction under a future tax audit. As we know, for the case of tax underpayment due to self revision, the interest sanction will be calculated 2% per month from the total underpaid tax (Article 8 paragraph (2) of the 2000 KUP Law). For the case of tax underpayment due to a Tax Underpayment Assessment Notice under a tax audit, the interest sanction will be calculated 2% per month from the total underpaid tax starting from the due time of tax /the end of tax period, part of tax year/a tax year up to the issuance of the notice (max. 24 months based on the Article 13 of the 1994 KUP Law).

Again, the above step could be the most preferred choice when it comes to compare it with the other choice of not making revision to the tax returns. As previously mentioned, interest sanction on tax underpayment will be annulled if the tax underpayment derives from self revision to the tax returns. If a taxpayer choose not to make any revision to his/her tax return (s) up to 31 December 2008, he/she may face two potential tax risks. First, if tax due is found during a tax audit, the interest sanction on the tax underpaid will be imposed as accorded with the Article 13 of the 2000 KUP Law mentioned above. Second, if additional tax due is found due to new data found and/or data after a tax audit, a 100% surcharge will be imposed on the total underpaid under an Additional Tax Underpayment Assessment Notice. This is in line with Article 15 of 1994 KUP Law.

What will happen if the tax underpayment is in a material amount, for example, in hundred millions found during a tax audit in 2009? The related taxpayer will have to pay the material amount of tax due plus the sanction at 48% (2% x 24 months), not to mention the possibility of 100% surcharge when the tax underpayment assessment notice further becoming an additional tax underpayment assessment notice.

Based on the above illustration, it can be concluded that it may cause such a great loss if certain taxpayers miss this chance, particularly those potentially be subject to a tax audit and frequently make inaccuracy in performing their tax obligations. Taxpayers are ought to consider this so called limited tax amnesty as one of the most potential ways in terms of cost efficiency.

For those choosing to revise the tax returns under this limited tax amnesty policy, it is highly suggested to consider the time limit to do so. Since it has already reached May 2008, taxpayers should promptly file revision within this 8 (eight) months). In addition, to succeed in doing so, ensuring the accuracy of the revisions by firstly conducting tax review would be considered a wise measure.

Voluntary Registration for Tax ID Number

納税者ID 番号の自発的登録

Similar with revision of tax returns, voluntary registration for Tax ID Number in year 2008 is also something not to be missed. Related to the second facility, the taxpayers are not only free of interest sanction on unpaid/underpaid tax from the previous years before having Tax ID Numbers, but also free of tax audits for the said previous years. However, if there is data/information found confirming that the submitted tax returns are untrue, the exemption of sanction and tax audit may not be acquired by the related taxpayers. For example, if it is acknowledged from a third party that total income reported by a taxpayer in the tax return is smaller than the actual income, the said taxpayer could not enjoy the two facilities mentioned for the related tax year.

Up to this moment, a tax audit seems to be a haunted nightmare feared by most taxpayers. Some say that once a tax audit is conducted, all records of assets and liabilities will be dug out by the tax auditor. Furthermore, a taxpayer may not only potentially subject to a tax audit for one tax year but also five tax years earlier. So, accepting the offer to be free of a tax audit just like having a sweet dream to come true, isn’t it? Not to mention the annulment of interest sanction due to unpaid/underpaid for the previous years before having the Tax ID Number. How to take the offer? By voluntarily registering for Tax ID Number and submitting the 2007 Income Tax Return.

The only consequence to be borne by individuals registering themselves voluntarily for Tax ID Numbers in 2008 is settling the unpaid/underpaid tax from the previous tax years (under an assumption that the Tax ID Number should have been obtained since the previous tax years). Off course, the said individual taxpayers should firstly disclose their tax obligations through their tax returns from the previous years before having Tax ID Numbers.

What should be realized is that the 2007 KUP Law gives wider opportunity for the tax authority to utilize third parties in providing data of taxpayers. In addition, more sophisticated technology used for the tax administration enables the tax authority to detect the validity of assets owned by taxpayers. They all mean that from day to day the chance of those not willing to obtain Tax ID Numbers and to disclose their entire assets is being narrowed. It may be said that time will come for them to have their Tax ID Number as well as their tax assessed under authorization. If they could avoid from it this year, there will be no guarantee to do that again in the following years. The most important thing to be also emphasized is that these facilities may not be available in the following years.

Tips for Success in Utilizing Tax Amnesty

タックス・アムネスティ(税大赦)利用による成功へのヒント

After reading the above, interested in utilizing the ‘limited’ tax amnesty? Please remember to do it carefully. If otherwise, these facilities could not be enjoyed.

(a) Revision of Tax Return

There are some requirements to fulfill for every taxpayer in making revision of tax return based on the 2000 KUP Law as follows:

  1. Submitting a tax return within 2 (two) years after the end of tax period, part of tax year/one tax year, so long as no tax audit has ever been conducted by the tax authority.
  2. When the said 2 (two) year period has elapsed, the related taxpayer could not be allowed to make revision unless:
  • No tax audit has been conducted and the said taxpayer accepts a decision on objection/appeal against a tax assessment notice of previous tax year stating different loss per fiscal compared with a tax assessment notice subject to objection/appeal. In this case, however, the taxpayer only has a 3 (three) month period since accepting the decision on objection/appeal.
  • There is no issuance of any tax assessment notice and the self revision gives rise to reduction in loss and increase of tax due, assets, and capital.

(b) Voluntary Registration for Tax ID Number

For newly Tax ID Number owners, the updated and prevailing tax regulations may not be things that they are familiar with. Individual taxpayers tend not to understand what tax objects and non tax objects are, which later lead to the potential of inaccuracy in completing the tax return. For illustration, a individual employee taxpayer with relatively medium salary reports a luxurious building inherited from his late parents included as his taxable income in the tax return. According to the prevailing Income Tax Law (Law No.7 year 1983 as lastly amended with Law No.17 Year 2000), inheritance is not a tax object. By reporting it as a tax object, he may be obliged to pay unnecessary tax.

Another inaccuracy commonly made by new taxpayers is due to lack of understanding in history of their asset acquisition and the absence of the supporting evidence. Continuing the above illustration, what will happen if the same person as previously mentioned reports the building as asset acquired in 2007 whereas the tax due for the said year is quite small? Yes, the answer can be easily guessed. He will be deemed not having all of his income reported. When he could not provide adequate explanation and supporting evidence that the building is inherited from his parents, it is most likely that he would pay bigger tax.

In the end, to reach a success in utilizing the tax clemency offered and not to give rise to unnecessary tax risks, new taxpayers should at least do the following:

  1. To report all income based on the actual condition and to identify tax objects and non tax objects based on the prevailing tax regulations;
  2. To maintain evidence of acquisition/transfer of assets and liabilities; and
  3. To identify acquisition year, source and amount of any assets and liabilities;
  4. To acknowledge and update of the latest tax regulations related.

If there is still uncertainty whether the above things have been done accurately, it is suggestible to ask the tax professionals for their assistance.

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