Based on the hierarchy of Indonesian tax law, the Law on General Provisions and Tax Procedures (UU KUP) stipulates that the Director General of Taxes possesses the attributive authority to conduct audits to test taxpayer compliance in fulfilling tax obligations. The execution of this authority is further regulated through Government Regulation Number 50 of 2022, which provides guidelines for the procedures of exercising rights and fulfilling tax obligations. As the latest primary implementing regulation in the era of the core tax administration system (Coretax), the Ministry of Finance issued Minister of Finance Regulation Number 15 of 2025 (PMK 15/2025). This regulation revitalizes audit procedures by classifying compliance audit types into Comprehensive Audits, Focused Audits, and Specific Audits. Legally, a Focused Audit is defined as an audit to test tax compliance that focuses deeply on one or several accounts in the Tax Return (SPT) and/or Tax Object Notification Letter (SPOP).
The tax authority designates taxpayers as audit targets to test compliance based on two primary conditions. The first condition includes the submission of a request for the refund of tax overpayment or the submission of a Tax Return stating an overpayment. The second condition encompasses the selection of taxpayers based on a risk analysis system indicating non-compliance. Focused Audits are generally the instrument used by the tax authority to follow up on the second condition, where the taxpayer's areas of non-compliance have been isolated to specific accounts.
In technical execution, the Directorate General of Taxes implements the Risk-Based Audit (RBA) method to select taxpayers. The Audit Planning Committee at the level of the Tax Office, Regional Office, up to the Head Office compiles the List of Potential Excavation Priority Targets (DSP3) and the List of Audit Priority Targets (DSPP). The Audit Planning Committee determines the population of taxpayers to be audited based on high non-compliance indications that create a tax gap between the tax profile in the Tax Return and the actual economic profile in the field.
The tax authority utilizes strict quantitative and qualitative analysis parameters to measure the level of this non-compliance risk. The first technical parameter includes a comparative analysis of the taxpayer's financial ratios against the average value (benchmarking) of similar industries. These ratios involve the Corporate Tax to Turn Over Ratio (CTTOR), Gross Profit Margin (GPM), and Net Profit Margin (NPM). The tax authority categorizes taxpayers into a high-risk level if the difference between the taxpayer's ratio and the industry average exceeds the 10% to 20% range.
The second technical parameter emphasizes testing the fairness of affiliated transaction schemes. Tax Auditors target taxpayers who have significant transactions with related parties, especially affiliated parties domiciled in jurisdictions with effective tax rates lower than Indonesia. The tax authority also provides specific attention to taxpayers possessing intra-group affiliated transactions whose value exceeds 50% of the total transaction value, or taxpayers transacting with business group members holding tax loss compensations. These characteristics frequently indicate aggressive tax planning schemes or transfer pricing.
The third technical parameter covers formal compliance and tax intelligence findings. These criteria include taxpayers who have never undergone an audit covering all tax types within the last three years, or Taxable Entrepreneurs who issue Tax Invoices to buyers with NPWP 000 exceeding 25% of the total issued Tax Invoices. Furthermore, information originating from the analysis of Information, Data, Reports, and Complaints (IDLP) as well as analysis from the Center for Tax Analysis (CTA) serves as a primary reference for the Audit Planning Committee to elevate a taxpayer's risk status.
As a practical application example, the integration of the Coretax system transforms the manual method of taxpayer selection into digital automation. The Coretax system utilizes the Compliance Risk Management (CRM) algorithmic engine to map taxpayers into risk quadrants systematically and measurably.
For instance, the CRM algorithm digests the financial statement data of PT XYZ and discovers that PT XYZ's Gross Profit Margin is consistently 15% below the benchmark of similar manufacturing industries. The system also identifies that 60% of PT XYZ's raw material purchases are executed from overseas affiliated companies. Based on this CRM engine analysis, the system places PT XYZ in the high-risk quadrant. The Audit Planning Committee then validates this data and places PT XYZ into the DSPP. Because the risk anomaly is specifically centered only on the Cost of Goods Sold (raw material purchases) and Transfer Pricing fairness, the Head of the Tax Service Office decides to issue a Focused Audit instruction.
On the first day of the audit, the Tax Audit team delivers the Audit Notification Letter accompanied by the Term of Reference (TOR) document to PT XYZ. This TOR document explicitly stipulates that the audited accounts are limited only to Purchases and Input Value Added Tax, ensuring the testing proceeds linearly, efficiently, and does not deviate into other low-risk operational accounts. This process proves that the determination of taxpayers for a Focused Audit is the result of an objective risk-based filtering, providing legal certainty for taxpayers while simultaneously maintaining the resource efficiency of the tax authority.
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