Tax Audit: It’s Not That Bad (税務監査: 考えているほど悪い状況ではありません。)

After difficulty, theres easiness. This statement is true even in the context of tax audit. After all of the difficulties arise in a tax audit process, taxpayer may still gain easiness from it.

There are quite various kinds of tax audit. Three of them are known as: 1) Routine audit, which is prioritized to taxpayer that submits tax return stating over payment or loss; 2) Audit for other purpose, which is conducted among other as a consequence for revoking taxpayer identification number, revoking VAT-registered person confirmation, making equalization of data and/or evidence, and determining beginning production time/extending loss compensation period in connection to tax facility, as well as for tax collection purpose; and 3) Audit with selection criteria, which is conducted to a selected annual income tax return subject to a risk based audit.

To avoid tax overpayment or loss in order to keep away from the implementation of routine audit is relatively easy. However, what about the audit for other purpose, for example in a condition of making equalization of data/or evidence? In this case, to avoid the tax audit seems like difficult to do. Likewise, to avoid the audit with selection criteria is also difficult since the criteria are not publicly published. For these reasons, without to mention the other kinds of tax audit, which cannot be mentioned one by one, it could be concluded that tax audit principally is not avoidable. Consequently, taxpayer has no other choice but to prepare for the audit.

Benefits of Tax Audit

税務監査の有効活用

In facing a tax audit, taxpayer has to make many preparations, not only to prepare a good and correct bookkeeping as well as documents in accordance with the prevailing tax regulation, but also to make equalization between turnover and Corporate Income Tax, as well as to make equalization between Withholding Tax and expenses in business bookkeeping. Taxpayer also has to prepare good and correct arguments in connection to the tax exposures found by the tax auditor. Psychological factor in facing tax audit shall also be prepared by the taxpayer.

If the tax audit result is satisfactory, all burdens in connection to the audit will just disappear. On the contrary, when it is not satisfactory, the burden will become the worst. Therefore, it is not overwhelming if some taxpayers are afraid of the audit.

Not to be audited indeed is more comfortable. However, if the Instruction Letter for Tax Audit has been received, there is no need to drown in worry. There are always some wisdoms or benefits to gain from a tax audit. But how come? Here are the explanations.

Law Certainty

法の確実性

Article 22 of General Provisions and Tax Procedures regulates that the rights to collect tax shall expire after 5 (five) years have elapsed since the issuance of Tax Collection Notice (STP), Tax Underpayment Assessment Notice (SKPKB), Additional Tax Underpayment Assessment Notice (SKPKBT), Correction Decision, Objection Decision, Appeal Decision, and Judicial Review Decision. The expiration of tax collection shall be cancelled in the case of:

a. the issuance of warning letters and distress warrants;

b. the presence of acknowledgement of tax due from taxpayers directly and indirectly;

c. the issuance of SKPKB/SKPKBT as meant in Article 13 paragraph (5) and Article 15 paragraph (4) of General Provisions and Taxation Procedures Law (Law No. 6 year 1983 as lastly amended by Law No. 28 year 2007); and

d. the presence of crime investigation on taxation field.

Thus, in a normal condition where there is no reason for postponement of tax collection expiration, upon the collection of tax obligation of year 2008 shall be expired in year 2014. However, should the taxpayer wait for 5 years?

Law certainty, which is ideal in taxation, could only be realized if the 5 years period from the issuance of tax assessment notice has expired. Nevertheless, tax audit that resulted in the issuance of tax assessment notice principally is a sign of completion of tax obligation fulfillment for the audited period/fiscal year.

In practice, it is proven that the possibility of revision on tax assessment notice is relatively small, moreover for those resulting in additional tax. In accordance with article 15 of General Provisions and Tax Procedures, additional tax through SKPKBT shall be given in the case of new data which cause the addition to amounts of tax due being found out after a tax audit. Defined as new data shall be data/information on all things needed for calculating the amount of tax due which are not yet notified by taxpayers upon the previous stipulation, in both tax returns along with attachments, and also in the companys bookkeeping given up in the time of audit.

In addition, new data or the data previously not yet disclosed shall cover the data that:

a. taxpayers do not disclose in tax returns along with attachments (including financial statements); and/or

b. upon the examination for the previous stipulation, taxpayers do not disclose data and/or give other kinds of information truthfully, completely and in detail thus making auditor impossible to apply provisions of taxation laws correctly to the calculation of tax due.

If the taxpayers have made a good bookkeeping and fulfilled all the tax obligations properly, then there is no reason to be worry about the possibility of new data found. On the other words, if an audit has been conducted, principally taxpayers are getting closer to the Law certainty.

Performance Parameter of Tax Obligation Fulfillment

納税義務施行能力のパラメータ

Until now, the basic objective of tax audit is to assess the tax obligation fulfillment made by taxpayer. In a normal condition, an audit will not give a satisfying assessment notice for the taxpayer if the self assessment of the said tax obligation fulfillment is not in accordance with the prevailing tax regulation. Meanwhile, if the tax obligation fulfillment is already in line or at least close to the provisions determined in the tax regulation, the tax assessment will potentially satisfactory for the taxpayer. Thus, to assess whether the implementation of tax obligation is already fulfilled or not, taxpayer will need tax audit to be conducted.

Based on the audit result, taxpayer would be able to know whether the financial report has been properly prepared. This is important since the good tax obligation fulfillment shall be based on a good financial report.

If the audit result is unsatisfactory, the result can be used as a base to fix up the companys bookkeeping system. It can also be utilized as a parameter for taxpayers about the importance of developing related team, for example by improving employees knowledge by providing suitable trainings.

Base of Future Planning

将来への基本計画

In accordance with PMK Number 199/PMK.03/2007, auditor has to provide written notification regarding audit result to taxpayer and make Final Discussion of Audit Result if the taxpayer present within the determined due date. From these two obligations, the taxpayer will know about the points of mistake made in fulfilling the tax obligation. Taxpayer may also ask for audit working paper from the tax auditor to find out about the mistakes in detail.

By knowing the mistakes, taxpayer could make correction on the periodic or annual tax returns of certain year, which may have same mistakes as before. For the long term, taxpayer may also be able to change the companys policy that may lead to the same mistakes. By this improvement, it is expected that potential exposure in form of correction in the future tax audit can be minimized.

Media for Learning

学習メディア

The activity of tax auditor in the time of audit principally is not intended to find mistakes made by taxpayers. Explicitly, tax auditor may also perform other activity, which is beneficial for the taxpayer, for example by giving guidance to taxpayer in fulfilling the tax obligation in accordance with the prevailing tax regulation. This is in line with Article 11 PMK No.: 199/PMK.03/2007.

If this guidance is performed in a right way by the tax auditor, then even tough the provision of tax regulation often raise multi interpretation, taxpayer at least will know about the interpretation of certain regulation from the tax auditors point of view concerning taxation matters encountered by the company in a certain period/ tax year. This could be beneficial since if the company encountered the same issue in the future and that there is no amendment on the said regulation, the previous tax auditors point of view could be utilized as one of consideration for the taxpayer to overcome the issue.

Other thing to be considered is that upon tax underpayment assessment notice (SKPKB), taxpayer would be subject to interest sanction of 2% per month for a maximum 24 months. This sanction is calculated since the time of tax due/the end of tax period, a part of fiscal year/fiscal year to the issuance of SKPKB.

For the short period, the significant amount of tax due collected by the SKPKB definitely is not beneficial to taxpayer. But for the long term, this could make the company to take a lesson from the sanction. In order to keep away from falling to a same hole, the company would try not to repeat the same mistake. One of effective ways to minimize the mistakes is by conducting tax review, by internal staff or by using tax consultant service.

Closing

結び

Many taxpayers facing the tax audit. If the taxpayers have fulfilled the tax obligation properly, basically there is nothing to be worry about. The thing to do in the case of an audit is just to prove that all tax obligations have been fulfilled properly and supported by relevant evidences. This is very important to be conducted early in the beginning.

Other than those mentioned above, another thing to underline is that many taxpayers also facing the tax audit. Further, If the taxpayers have fulfilled the tax obligation properly, basically there is nothing to be worry about. The thing to do in the case of an audit is just to prove that all tax obligations have been fulfilled properly and supported by related evidences. This is very important to be conducted early in the beginning.

Lastly, even taxpayers have to spend more money, they can be successful in facing a tax audit by asking for a help to other party having experience in handling the tax audit. However, please remember that according to Circular SE-16/PJ./2008, corporate taxpayer with turnover of more than IDR 2.4 billion/year or individual taxpayer with turnover of more than 1.8 billion/year may only be allowed to ask for a help to tax consultant. And according to the same Circular, the tax consultant shall fulfill the requirement which has been determined.

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