When Income Tax Turnover and VAT Differ: The Board of Judges Rejects Consignment Arguments, Taxpayers Must Prove Accounting Consistency

Substantial differences between the Revenue (Turnover) reported in the Corporate Income Tax (CIT) Annual Tax Return and the Tax Base (Dasar Pengenaan Pajak / DPP) for Value Added Tax (VAT) reported in the Monthly VAT Returns frequently trigger fiscal corrections.

In the Tax Court Decision Number PUT-012711.15/2023/PP/M.XIIB Year 2025, the Board of Judges faced a dispute regarding a revenue correction amounting to IDR 45.35 Billion, which was based solely on the results of a tax equalization. The Appellant, PT DL, firmly maintained that this discrepancy was not hidden turnover, but rather a difference in treatment and timing of recognition between Income Tax and VAT for non-merchandise transactions, such as consignment sales and fixed asset disposals—a practice they believed complied with Article 28 of the General Tax Provisions and Procedures Law (UU KUP).

In response to the Appellant's rebuttal, the Respondent (Directorate General of Taxes / DGT) maintained the correction on the grounds that the Appellant failed to demonstrate good faith (Article 29 of the UU KUP) by failing to provide detailed supporting documents, such as equalization working papers and agreements/contracts, during the audit and objection stages.

Although the Board examined new evidence submitted by the Appellant during the court hearings (such as the General Ledger and invoices), the Board applied a high and skeptical standard of proof. Consequently, the Appellant's arguments collapsed.

The Board decided to uphold the revenue correction because the evidence presented by the Appellant was deemed insufficient and unconvincing.

For the consignment sales, the Board found no explanation of the revenue recognition scheme in the Notes to the Financial Statements (Catatan Atas Laporan Keuangan / CALK) to support the timing difference argument. Meanwhile, for the sale of assets (IDR 44.13 Billion), the Board discovered significant discrepancies between the alleged asset sales value and the Loss on disposal of fixed assets recorded in the Audited Financial Statements, leaving the claim unverified. This decision implicitly concludes that the Appellant's failure to present consistent and detailed evidence in the Audited Financial Statements invalidated the substance of their rebuttal.

The impact of this ruling reinforces that arguments regarding differences in Income Tax and VAT recognition must be supported by flawless and consistent documentation, ranging from agreements/contracts and the General Ledger to adequate disclosures in the Audited Financial Statements/Notes to the Financial Statements. Taxpayers who fail to meet this standard of proof, even when presenting a detailed General Ledger during court proceedings, must accept corrections based on Income Tax-VAT equalization.

The Comprehensive Analysis and Tax Court Decision regarding this dispute are available here.