Tax Litigation Services in Indonesia helps businesses and individuals resolve disputes with tax authorities. This includes managing conflicts from tax audits, assessments, and decisions by the Directorate General of Taxes (DGT) or the Tax Court. These services involve representing clients through the dispute process and providing strategic advice to achieve favorable outcomes. Expert guidance is essential to navigate and resolve tax issues effectively.

What is a Tax Litigation Service?

Tax litigation refers to the legal process that occurs when a taxpayer disputes a decision made by the tax authorities. This process can involve various stages, including:

1. Tax Audit Disputes: When the DGT conducts an audit and finds discrepancies, it may issue a tax assessment. If the taxpayer disagrees with this assessment, a dispute may arise.
2. Objections and Appeals: Taxpayers have the right to file an objection against a tax assessment. If this objection is rejected, the next step is to file an appeal with the Tax Court.
3. Tax Court Litigation: Should the appeal process lead to litigation, the case is heard in the Tax Court, which is the judicial body specifically tasked with resolving tax disputes in Indonesia.
4. Civil Review: If the Tax Court’s decision is unsatisfactory, there is an option to seek a civil review by the Supreme Court of Indonesia under certain conditions.

The Role of Tax Litigation Services in Indonesia

Engaging a Tax Litigation Service in Indonesia provides businesses with the expertise required to navigate the complexities of tax disputes. Here’s how these services can assist:

• Expert Representation: Tax litigation professionals represent clients in dealings with the DGT, the Tax Court, and other relevant bodies. This representation is crucial in ensuring that the merits of the case are effectively presented and defended.
• Strategic Advice: Beyond just legal representation, a tax litigation service offers strategic advice on how to approach disputes, whether it’s negotiating with the tax authorities or deciding when to escalate a matter to the Tax Court.
• Comprehensive Support: From the initial stages of a tax audit to the final resolution in court, tax litigation services provide end-to-end support. This includes preparing and filing objections, representing clients in court, and even pursuing civil review if necessary.
• Mitigating Risks: One of the primary goals of tax litigation services is to mitigate the risks associated with tax disputes. This includes advising on compliance to avoid disputes and resolving issues efficiently when they arise.

Why Businesses Need Tax Litigation Services

Indonesia’s tax environment is governed by a complex set of laws and regulations, and the consequences of non-compliance can be severe. Disputes with tax authorities can lead to significant financial penalties, disrupt business operations, and cause reputational damage. Engaging a Tax Litigation Service in Indonesia offers several key benefits:

• Expert Knowledge: Tax litigation professionals have in-depth knowledge of Indonesian tax law and the workings of the Tax Court. This expertise is critical in navigating disputes successfully.
• Time Efficiency: Handling tax disputes can be time-consuming, especially for businesses that need to focus on their core operations. Tax litigation services take on this burden, allowing businesses to concentrate on growth.
• Cost-Effective Resolution: While litigation can be costly, the cost of not engaging expert services can be much higher if a dispute leads to severe penalties or unfavorable rulings. A well-managed litigation strategy can lead to more favorable outcomes.

Choosing the Right Tax Litigation Services in Indonesia

When selecting a Tax Litigation Service in Indonesia, businesses should consider the following factors:

• Experience and Expertise: The service provider should have a strong track record in handling tax disputes, including experience in the Tax Court and knowledge of Indonesian tax law.
• Comprehensive Services: Look for a provider that offers a full range of services, from pre-litigation advice to representation in court and assistance with civil review.
• Client Focus: The best tax litigation services work closely with clients to understand their business objectives and tailor their approach accordingly.

How Can Double M Help?

Double M is here to guide you through tax disputes in Indonesia. With our strong experience in tax law, we offer full support at every stage of the process, from audits to resolving disputes.

Expert Representation: We represent you in dealings with the DGT and other authorities, making sure your case is strong and well-prepared.

Custom Solutions: We know each tax issue is different, so we provide advice and strategies that fit your specific needs.

Complete Support: From the start of a tax audit to the final resolution, we’re with you every step of the way, handling everything for a smooth process.

Risk Reduction: We help you avoid penalties and achieve the best possible outcomes by offering proactive advice on compliance and dispute resolution.

Trust Double M to help you navigate tax disputes in Indonesia with confidence. Also, you may want to read our article on Tax Optimization in Indonesia to learn more about optimizing your taxes and reducing risks.

Withholding tax in Indonesia is a system where a third party is given the responsibility to cut or collect taxes from a certain payment. They later pay that amount to the government in order to comply with the regulations. Within the context of personal income taxes, withholding tax is paid in installments which are done by cutting certain amounts by the third party as a part of the tax services.

What are the Types of Withholding Tax in Indonesia?

 In Indonesia, there are several types of withholding tax payments. Such as withholding tax under Article 21 (PPh 21), withholding tax under Article 22 (PPh 22), withholding tax under Article 23 (PPh 23), withholding tax under Article 26 (PPh 26), withholding tax under Article 4 Chapter 2 (PPh 4 Ayat 2), and withholding tax under Article 15 (PPh 15). 

Withholding Tax under Article 21

In this article, it is stated that employers have to withhold tax from salaries and severance payments to their laid off employees while also paying tax to the State Treasury for the employee’s behalf. The employer is obliged to file the article 21 withholding tax on the 10th to 20th day of the following month when the tax is due to be paid. The tax taken from the employee’s salary can be claimed as tax credit on the employee’s annual tax return. It is important to note that taxpayers with no Tax ID Number (NPWP) will be charged 20% higher than the normal rate. 

Withholding Tax under Article 22

In this article, the taxes are taken from the company’s imported goods, income from the State Treasurer or other state-owned enterprises, or from the purchase of luxury products. For companies that are importing goods, the withholding tax rate stands at 2.5%. For unregistered importers, the withholding tax rate stands at 7.5%. Purchases of luxurious goods like cruisers, yachts, aircrafts etc are charged with a tax rate of 5%.  

Withholding Tax under Article 23

This article stipulates that certain payments made to taxpayers are due to be cut by a withholding tax rate of 15%. These stipulations apply for payments like dividends, interest, swap premiums, loan fees, royalties, prizes, and bonuses. 

Withholding Tax under Article 4 Chapter 2

This article further regulates that withholding taxes must be paid for incomes like rental of land and buildings, transfers of land and building rights, construction services, IPO, saving deposits, bank certificates, discount on bonds, lottery prizes, and dividends. 

Withholding Tax under Article 15

This final article regulates a withholding tax rate of 1.8% for the charter of local airlines, 1.2% for using the services of a local shipping company, and 2.64% for foreign shipping and airlines. 

How can Double M help?

Withholding Tax is a type of tax that is collected by a third party to be deposited for the government later on. With Double M’s help, you will be able to calculate and pay these taxes while complying with the regulations.

The Covid-19 pandemic has hit Indonesia for nearly thirteen months since the government confirmed the first infection in Indonesia on March 2, 2020. Not only causing a public health crisis, but the Covid-19 pandemic has also significantly disrupted national economic activity. The Indonesian government is taking action to expand tax incentives to maintain economic stability

The government’s decision to implement Large-Scale Social Restrictions (PSBB) since April 2020 has had a broad impact on the process of production, distribution, and other operational activities, which ultimately leads to economic performance. The Indonesian economy in 2020 will grow negatively. Unemployment and poverty rates are increasing. Various regulations have been released by the government to put the national economy back into a positive trajectory after the pandemic.

Various economic policies have been established to stand the negative impact of Covid-19.

In reaction to the economic effects of COVID-19, the Indonesian government repealed Ministry of Health Regulation No.44/PMK.03/2020 (PMK-44) and replaced it with Ministry of Finance Regulation No.86/PMK.03/2020 (PMK-86), which takes effect on July 16, 2020.

The list of taxpayers eligible for Article 21 of the Employee Income Tax (EIT), Article 22 of the Income Tax on Imports, Article 25 of the Income Tax Incentive, and Value Added Tax (VAT) has been expanded in PMK-86 (VAT). The list of qualifying taxpayers has been extended to include taxpayers who meet the following criteria:

•  Have a Business Classification (Business Classification Field / KLU) which is included in the Annex PMK-86;
• Declared as a company granted with Import Facility for Export Purposes (Kemudahan Impor Tujuan Ekspor/KITE)
• Have a license as an operator and/or business in the Bonded Zone (BZ) area.

Processing and refining were included as eligible industries in the previous PMK-44, and the number of eligible industries has been extended in PMK-86. The particular KLU mentioned in each Attachment to PMK-86 should be used to determine whether or not a taxpayer is eligible. The full list can be found in PMK-86’s addition.

Expand tax list of industries at PMK-86.

Attachment A (consisting of 1,189 Klus) for Article 21 EIT incentive, which includes:

• Agriculture, Forestry, and Fishery
• Mining and Excavation
• Processing/manufacturing
• Procurement of Electricity, Gas, Steam/Hot Water, and Cold Air
• Procurement of Water, Garbage Treatment and Recycle, Waste and Garbage Disposal and Cleaning
• Construction
• Wholesale and Retail Trade; Repair and Maintenance of Cars and Motorcycles
• Transportation and Warehouse
• Furnishing of Accommodation and Furnishing of Meal-Drink
• Information and Communication
• Financial and Insurance Service
• Real Estate
• Professional, Scientific, and Technical Service
• Rental, Manpower, Travel Agency and Other Business Supporting Service
• Education Service
• Health and Social Activity Service
• Culture, Entertainment, and Recreation
• Other Service Activities

Attachment H (consisting of 721 Klus) for Article 22 Income Tax on imports and VAT incentives, which includes:

• Agriculture, Forestry, and Fishery
• Mining and Excavation
• Processing/manufacturing
• Procurement of Electricity, Gas, Steam/Hot Water, and Cold Air
• Procurement of Water, Garbage Treatment and Recycle, Waste and Garbage Disposal and Cleaning
• Construction
• Wholesale and Retail Trade; Repair and Maintenance of Cars and Motorcycles
• Transportation and Warehouse
• Real Estate

Attachment M (consisting of 1,013 Klus) for Article 25 Income Tax incentive which includes: Agriculture, Forestry, and Fishery:

• Mining and Excavation
• Processing/manufacturing
• Procurement of Electricity, Gas, Steam/Hot Water, and Cold Air
• Procurement of Water, Garbage Treatment and Recycle, Waste and Garbage Disposal and Cleaning
• Construction
• Wholesale and Retail Trade; Repair and Maintenance of Cars and Motorcycles
• Transportation and Warehouse
• Furnishing of Accommodation and Furnishing of Meal-Drink
• Information and Communication
• Financial and Insurance Service
• Real Estate
• Professional, Scientific, and Technical Service
• Rental, Manpower, Travel Agency and Other Business Supporting Service
• Education Service
• Health and Social Activity Service
• Culture, Entertainment, and Recreation
• Other Service Activities

Expand Tax incentives in PMK-86 are still the same as PMK-44 which are the following:

1. For eligible taxpayers, the Article 21 EIT for employees with annual income not exceeding IDR 200 million will be borne by the government.
2. Exemption of article 22 Income Tax on imports by eligible taxpayers.
3. 30% reduction on article 25 monthly Income Tax installment of eligible taxpayers.
4. A preliminary VAT refund will be available for eligible taxpayers requesting a refund for a maximum IDR 5 billion.

This incentive is available for the period April – December 2020 but generally applies from the time of notification or application of incentives by taxpayers.

On April 30, 2020, the Directorate General of Taxation (Directorate General of Taxation) released Circular Letter No.SE-29/PJ/2020 (SE-29) as a reference to the introduction of PMK-86. According to SE-29, income tax incentives under Article 25 that are submitted no later than May 15, 2020, and EIT incentives under Article 21 that are submitted no later than May 20, 2020, will also be used beginning in April 2020. The notification, application process and realization report requirements remain the same. Except for Article 21 EIT which previously must be reported every quarter now become a monthly basis.

Final Expand Tax Incentive for SMEs

In addition to expanding the number of eligible taxpayers, PMK-86 includes new incentives for Small and Medium Enterprises (SMEs) that are subject to a 0.5 percent final income tax rate. The final tax regime of 0.5 percent extends to taxpayers with an annual gross turnover of no more than Rp 4.8 billion, according to Government Regulation No.23 of 2018 (GR-23)

The government will bear the final tax under this regime from April to December 2020, according to PMK-86. The final tax regime of 0.5% applies to taxpayers with an annual gross turnover of no more than Rp 4.8 billion.

On the 20th of the following month, qualified taxpayers shall apply a monthly realization report on the final tax borne by the government. PMK-86 specifies more specific operating processes for all qualifying taxpayers and tax holders.

Expand tax transitional

The government has set some transitional provisions regarding the changes from PMK-44 to PMK-86 which are the following:

Regarding the utilization of Article 21 EIT and Article 25 Income Tax Incentives based on PMK-44 do not need to return the same notification based on PMK-86.

Taxpayers who have submitted or granted SKB Article 22 Income Tax on imports based on PMK-44 do not need to reapply for SKB based on PMK-86. Those who have been get tax incentives based on PMK-44 can continue to enjoy the incentives.

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