Taxpayer Loses Appeal! Tax Court Rejects Rp37.5 Billion Correction After Failure to Separate Material Costs and Services in WHT 23 Equalization

The implementation of Article 23 of the Income Tax Law (PPh), which mandates withholding on specific service income, frequently results in evidentiary disputes, especially when tax authorities utilize external data, such as Value Added Tax (VAT) Output reported by counter-parties, for equalization purposes. The case involving PT AALI highlighted this complexity, leading to the confirmation of the Rp37,568,972,406.00 WHT Article 23 correction for the December 2014 tax period. The Directorate General of Taxes (DGT) based the correction on the discrepancy found through WHT 23 and VAT Output equalization, suspecting unwithheld service income. This methodology is legally permissible under Article 12 paragraph (3) of the General Tax Provisions and Procedures Law (UU KUP) as initial evidence.

Core Conflict: Divergent Tax Objects and Material Components

The core of the conflict lies in the difference between the objects of the two taxes. The Appellant argued that WHT Article 23 should only be imposed on the value of the services, whereas the VAT Output Tax Base (DPP) reported by the counter-party covers the total value of Taxable Services delivery, which may include components like material costs or goods (reimbursement costs) that should be excluded from WHT Article 23 object. Therefore, the discrepancy found by the DGT, according to the Appellant, was not automatically WHT-liable service income.

Judicial Resolution: Burden of Proof and Documentation Standards

However, the Tax Court Judges explicitly rejected the Taxpayer's argument. The panel considered the VAT Output data held by the DGT as reliable initial evidence. Consequently, the burden of proof was entirely on P-AALI. The panel ruled that the evidence submitted by the Appellant, which was merely a sample and failed to clearly separate service and material components for the entire corrected value, was insufficient to overturn the correction. This decision affirms that in equalization disputes, documentation must be comprehensive, including detailed contracts and invoices for every disputed transaction, explicitly segregating the value of services subject to WHT Article 23.