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Indonesia’s tax disputes draw global attention
Indonesia’s tax dispute system, criticized for its complexity, bias risk and lack of legal certainty, has drawn global attention amid rising trade tensions and renewed calls for structural reform.
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An official explains regulations to a taxpayer at a tax office in Palangka Raya, Central Kalimantan, on March 3, 2024.
(Antara/Auliya Rahman)
U
nited States President Donald Trump’s seismic policy of sweeping global tariff hikes will radically intensify trade tensions, Indonesia included. Cited in the official statement, Indonesia faces a 32 percent tariff, allegedly due to its protectionist policies and discriminatory trade measures. I will leave it to trade law and economic experts to assess the validity of the measure and formulate appropriate mitigation strategies.
However, in the background of the policy announcement lies a lesser-noticed but important detail that warrants closer attention from Indonesia. The 2025 US National Trade Estimate Report (USTR) on Foreign Trade Barriers, in its section on Indonesia, states:
“US stakeholders continue to express concerns about the Ministry of Finance’s Directorate General of Taxes’ tax assessment process. Such concerns include a non-transparent and cumbersome auditing process, heavy fines for administrative mistakes, lengthy dispute mechanisms and a lack of legal precedent within the Tax Court.”
While this paragraph may appear generic and lacks detail, as a tax practitioner in Indonesia, I cannot say it is entirely baseless.
Take, for example, the issue of prolonged dispute resolution. A presentation by the Secretariat of the Taxation Supervisory Committee (KPP) during the Annual Seminar of the Indonesia branch of the International Fiscal Association in December 2024 revealed the following average completion times, 9.2 months at the objection stage, 21.8 months for Tax Court proceedings and 18.8 months for judicial review at the Supreme Court. In sum, it can take approximately five years for a taxpayer to obtain final legal certainty.
It would be difficult to argue that this process is not lengthy, especially for a single tax assessment letter. By law, objections must be filed for each tax assessment letter, which may cover a full fiscal year for income tax or a monthly period for value added taxes (VAT) and withholding taxes. Thus, if an audit results in 10 assessment letters, the taxpayer may face 10 separate dispute processes, each potentially lasting years.
Even more concerning is the administrative structure of the dispute mechanism itself. When a taxpayer disagrees with a tax assessment, the first step in the resolution process is filing an objection, not to an independent body, but to the head of the regional taxation office, a senior official within the Taxation Directorate General. Though a different division handles the objection, the ultimate decision is made by a person responsible for achieving regional tax revenue targets, including from the office that issued the disputed assessment. This structural overlap creates an inherent risk of administrative bias.
