Judges Can't Just Use Their Gut! The Legal Requirements for "Judicial Conviction" in Tax Disputes.

In the drama of tax dispute hearings, both Taxpayers and the Tax Authority often wonder: what actually drives the Judge's gavel to rule in favor of one party? Is it merely emotional argument, or is there a rigid standard? The answer lies in the concept of "Judicial Conviction" (Keyakinan Hakim), a crucial yet often misunderstood element specifically regulated in Article 78 of Law Number 14 of 2002 concerning the Tax Court.

Juridical Definition: Objectivity Over Subjectivity

Many assume that "conviction" is abstract and personal. However, the Elucidation of Article 78 shatters this assumption with a very strict and binding definition:

"The Judge's conviction is based on the assessment of evidence and is in accordance with tax laws and regulations."

This definition sets clear boundaries. Judicial conviction in the Tax Court cannot be built on empty intuition, subjective feelings, or mere assumptions. That conviction must be the result of a synthesis of two mandatory elements:

1. Results of Evidence Assessment: The Judge must examine the evidence (documents, witness testimony, experts, etc.) presented in the hearing.
2. Accordance with Law: The conclusion drawn from such evidence must align with the prevailing positive tax laws.

In other words, a Judge cannot be "convinced" that a Taxpayer is guilty if there is no valid evidence, or if the evidence contradicts the law.

Application in Hearings: Tax Dispute Case Study

Let us observe the real-world application of this concept in an appeal dispute, for instance, regarding Intra-Group Service Cost Corrections or Input VAT Credit disputes.

In a hearing, the Appellee (Tax Authority) might correct management fees paid by the Taxpayer to an overseas head office on the grounds of "not being convinced" that the services actually existed. On the other hand, the Appellant (Taxpayer) submits evidence in the form of contracts, invoices, and transfer proofs.

How does the Judge form their conviction pursuant to Article 78?

1. Evidentiary Assessment Stage: The Judge does not immediately accept the Appellee's rejection. The Judge will examine the submitted evidence. If the Appellee merely asserts a correction based on assumptions without supporting "strong and competent evidence" as required by Article 12(3) of the KUP Law, then the Appellee's position is weak. Conversely, if the Taxpayer can demonstrate valid cash flow and supporting documents (pursuant to Article 69), the Judge has a factual basis.
2. Alignment with Law: The Judge then juxtaposes these facts with Article 6 of the Income Tax Law (regarding deductible expenses). If the facts show money truly went out to generate income, then legally, the expense is deductible.
3. Formation of Conviction: Based on the fact that the Taxpayer's evidence is valid (element 1) and the expense is legal under the Income Tax Law (element 2), the Judicial Conviction is formed that the Tax Authority's correction is incorrect. The Judge then decides to grant the Taxpayer's appeal, not out of "pity," but because the evidentiary construction aligned with the law compels the Judge to be so convinced.

Conversely, if in a VAT dispute, a Taxpayer claims Input VAT Credit but fails to produce the original Tax Invoice or valid payment proof during the evidentiary test, the Judge lacks the material basis to form a conviction. In this condition, the Judge must reject the appeal because their conviction is constrained by the absence of legally compliant evidence.

Conclusion

Article 78 and its elucidation are a guarantee of legal certainty for justice seekers. It affirms that in the Tax Court, material truth is king. The Judge's conviction is the final product of a logical process combining trial facts with legal rules, ensuring that every resulting verdict is objective and accountable.