Access to tax court must be easy

The Jakarta Post ,  Jakarta   |  Mon, 06/26/2006 3:48 PM  |  Opinion

Pahala Nainggolan, Jakarta

Taxpayers have won the battle over the new drafts of tax laws, as the amendments will penalize tax officers guilty of misconduct under the criminal code, as proposed by the Indonesian Chamber of Commerce and Industry. This is to be believed the most effective way of preventing tax officials from abusing their authority.

But the tax office should complain about this inconsistency, because tax officers will be treated differently to other civil servants who collect revenue from the public, such as those working for local revenue agencies.

Taxpayers' rights will be protected by a mechanism of objection and appeal. Currently, most objections from taxpayers tend to be rejected. That makes sense because an objection letter is filed to the head of the nearest KPP (Tax Service Office) who is in charge of issuing an SKP (Notice of underpayment tax assessment) as a base for imposing additional tax payments. Accepting the objection means revoking his own previous decision. In addition, the KPP chief has tax revenue targets he has to achieve as his performance parameter.

Taxpayers now rely mostly on appeals to the tax court. Under Law No.14/2002, the tax court is the last resort for taxpayers seeking justice for their tax disputes or disagreements over what tax officers have determined.

So far the tax court has conducted a more transparent mechanism. The procedures and deadlines for the decisions on appeal are clear. Both parties, taxpayers and tax officers, are invited to reconcile their documents first, before tax judges examine the substance of the case. Under this appeal procedure, more than 50 percent of cases are won by taxpayers.

Big problems arise if taxpayers try to illegally reduce tax payments by colluding with tax officers or deal with bad tax auditors who want to squeeze taxpayers by jacking up the tax obligations due.

In such cases, taxpayers are in a weaker position than tax officers. When taxpayers try to fight against bad tax auditors the existing mechanism puts them in a worse situation. Objections made to the chief of the nearest KPP will usually be turned down. But an appeal to the tax court encounters arduous and costly procedures.

The first problem in accessing the tax court is cashflow. Before their cases are examined, taxpayers are required to pay up front 50 percent of the amount of tax under dispute, otherwise the judges will not examine their case.

Given this costly and difficult procedure, and since the amount of tax under dispute is determined by tax auditors, taxpayers often prefer to collude with tax auditors to settle for a smaller tax obligation than go through the appeal process at the tax court.

The more tax underpayments determined by tax auditors, the less likely taxpayers will be willing to make an appeal to the tax court because they will have to pay up front larger sums of money even before their cases are examined. This is well understood by bad tax auditors who want to push taxpayers into collusive deals.

The obligation for taxpayers to pay up front 50 of the disputed amount is designed to prevent bad taxpayers from buying time or even evading tax payments. Without the obligation of an advance payment, most taxpayers would make appeals to the tax court, thereby making tax collection extremely difficult. But too much up-front payment also makes access to the tax court very costly.

Instead of requiring taxpayers to make an up-front cash payment, taxpayers who make an appeal to the tax court could be obliged to put up bank guarantees, surety bonds, promissory notes or fixed assets as collateral.

Access to the tax court should also be made easier. Taxpayers who face tax disputes outside Jakarta have to bear high cost travel expenses, especially because the limit for decisions on an appeal is set at 12 months. The process is made even more expensive because only the directors or the lawyers of the taxpayers are allowed to represent companies in the whole appeal process.

Local tax courts will strengthen taxpayers' positions when dealing with bad tax auditors. Taxpayers in Papua, for example, will not appeal for tax disputes involving only Rp 300 million because their travel costs back and forth to Jakarta during the hearing process will be larger than the amount they want to salvage through the appeal process. But the existence of local tax courts will empower taxpayers to make an appeal and discourage tax auditors from arbitrarily assessing taxpayers' obligations.

The writer is a former state auditor. He is currently pursuing a doctorate degree in management science at the School of Economics, University of Indonesia. He can be reached at pahala@tifafoundation.org.

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