Caution When Crediting VAT: Counterparty's PKP Status Revoked, Input VAT Forfeited in Tax Court

Tax Court Reaffirms Fundamental Principles on Input VAT Crediting and PKP Validity of PT NBI

The Tax Court reaffirms a fundamental principle in Value Added Tax (VAT) disputes regarding the crediting of Input VAT (PM). In Decision No. PUT-009952.16/2022/PP/M.IIB, the Panel of Judges ruled that the formal requirement, namely the active Taxable Entrepreneur (PKP) status of the Tax Invoice issuer, is absolute and cannot be disregarded. This decision was made even though the purchasing taxpayer claimed the underlying transaction for the Tax Invoice was genuine and the VAT had been paid.

Context of the May 2019 VAT Dispute

The context of this case is an appeal filed by PT NBI against a VAT assessment correction for the May 2019 tax period. One of the main disputes was the correction of Input VAT amounting to IDR 4.36 million originating from a transaction with PT GTA (GTA).

Core Conflict and Ex-Officio PKP Revocation

The core conflict in this dispute centers on the PKP status of PT GTA. The Directorate General of Taxes (DGT) as the Respondent, made the correction based on Article 9 paragraph (8) letter b of the VAT Law. The DGT proved in court that PT GTA's PKP status had been revoked ex-officio on February 25, 2019. Meanwhile, the Tax Invoice credited by the Appellant was only issued on May 1, 2019, more than two months after the revocation of the PKP status. On the other hand, the Taxpayer (Appellant) argued that the transaction was genuine, the VAT had been paid in full, and they were unaware of the revocation of their counterparty's PKP status.

Panel of Judges Resolution and Primacy of Formal Requirements

In its resolution, the Panel of Judges set aside the substantial arguments (genuine transaction) presented by the Appellant and focused on the fulfillment of formal requirements. The Panel verified the fact that the Tax Invoice was indeed issued by an entity that, juridically, no longer held PKP status at the time of issuance. Consequently, the Panel of Judges upheld the DGT's correction and declared the Input VAT non-creditable.

Fiscal Risk Implications for Businesses

This decision has significant implications and serves as a stark warning to the business community. Ignoring the validation of a counterparty's PKP status carries direct fiscal risks. VAT already paid by a company to a vendor cannot be credited against its Output VAT, effectively causing a double cost burden and eroding profitability.

Comparative Analysis and Evidentiary Requirements

Interestingly, in the same decision, there was another Input VAT dispute with PT KIEC worth IDR 82.8 million. For this dispute, the Panel of Judges actually annulled the DGT's correction. The reason was not related to substance, but because the DGT was deemed to have failed to prove its correction arguments during the trial. This highlights the importance of mastering formal evidence, both for the DGT to prove a counterparty's PKP status and for the Taxpayer to ensure the validity of every Input Tax Invoice to be credited.

A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here