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Jakarta Post

Editorial: Tax auditors in the spotlight

The Supreme Court’s decision last month to punish the Asian Agri plantation group and its 14 subsidiaries with Rp 2

The Jakarta Post
Thu, January 17, 2013

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Editorial: Tax auditors in the spotlight

T

he Supreme Court’s decision last month to punish the Asian Agri plantation group and its 14 subsidiaries with Rp 2.52 trillion (US$260 million) in back taxes and fines for tax evasion from 2002 to 2005 should be welcomed as a confidence-building landmark in the country’s fight against tax crime.

The tax fraud case, initially revealed in late 2006 by whistle-blower Vincentius Amin Susanto, Asian Agri’s former financial controller, was turned down by the Central Jakarta District Court and the Jakarta High Court last year, arguing that the case was an administrative tax case that it should be handled by the tax court.

The big question now after the Supreme Court’s verdict is how such a massive case of tax evasion, committed by inflating production costs, under-pricing export sales and transfer-pricing practices, could have taken place continuously for four years without being detected by tax auditors.

The case would have never reached the criminal court had it not been for whistle-blower Vincentius who also handed over reams of documented financial transactions as evidence to the Corruption Eradication Commission (KPK).

How tax auditors could have approved Asian Agri’s financial reports and tax returns without any qualifications for the four-year period begs further examination.

There are many other large palm oil companies operating in North Sumatra, all exporting most of their products. Given the scope of its tax-dodging practices, Asian Agri’s tax payments during that period should have been way below other palm oil firms of similar size.

The question, then, is why tax auditors had not been alerted to possible tax fraud by the unusually low tax assessments for Asian Agri for that four-year period. The auditors could have used the tax assessments of other big companies in North Sumatra as a benchmark or reference.

Moreover, the market price quotations of crude palm oil and palm kernel oil as the main export products of Asian Agri and most other palm oil companies in Indonesia are published daily. Auditors could have used these quotations to help them assess Asian Agri’s income and subsequent tax due.

Although he has allowed his tax auditors to be investigated for possible collusion, the director general of taxation, Fuad Rahmany, also acknowledged last week it was extremely difficult to detect tax evasion through transfer-pricing practices that were usually involved complex transactions.

This acknowledgement leads us to worry that a similar manipulation of tax obligations might also have been committed by other business groups through complex transactions within the country and overseas.

The tax returns of Asian Agri, as a big company, are assessed by auditors from large taxpayer offices (LTOs), which were established in 2002.

So if auditors from LTOs, which are staffed with highly skilled and well-paid officials to handle large business groups — including multinational companies — could have failed so miserably in detecting tax evasion of this magnitude for four consecutive years, we have every reason to doubt the technical competence of most of our tax auditors.

Asian Agri’s tax fraud also raises the possibility that tax auditors have been compromised or colluded with the taxpayer to understate the company’s earnings, thereby slashing their income tax obligations.

It is therefore most imperative and urgent that the Finance Ministry conduct independent, comprehensive investigations into Asian Agri’s tax assessments for the 2002-2005 period and investigate the auditors who examined the business group’s tax obligations.

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