Court Ruling Excerpt: Ordinary Discount or Tax Object?

The Tax Court ruling with Number PUT-006248.12/2024/PP/M.XIVA of 2025 has become a hot topic. This case is not merely a dispute over numbers, but a fierce battle over the nature of a "sales discount" and the legality of using a Director General Circular (Surat Edaran - SE) as a basis for tax imposition.

This dispute originated from the DJP's (Directorate General of Taxes) correction of price discounts granted by PT BI to its customers.

The DJP argued that the sales discounts granted by PT BI were rewards or compensation (not merely price discounts) because they were given under specific conditions, namely if the customer had settled its debt.

Based on this argument, the DJP used the Director General of Taxes Circular Number SE-24/PJ/2018 to classify this discount as an object of Article 23 Income Tax (PPh), which PT BI was obligated to withhold.

PT BI insisted that the discount was an ordinary mechanism for reducing the selling price, recorded via credit note and booked as a reduction in sales.

Furthermore, PT BI raised three main objections:

1. Legal Nature of SE: The DJP Circular (SE) is not a generally binding statutory regulation.
2. Principle of Non-Retroactivity: SE-24/PJ/2018 was issued on November 29, 2018, so it should not be used to impose tax on transactions that occurred throughout 2018 (retroactive application).
3. Procedural Error: The DJP determined the total annual correction accumulatively in only one tax period (December 2018), whereas Article 23 Income Tax is a monthly tax that should be determined per transaction month.

The Panel of Judges stated that the DJP was mistaken in using a Circular as the legal basis for imposing a new tax obligation on the Taxpayer. According to the hierarchy of regulations, an SE is only an internal guideline for tax officials and does not have binding legal force.

More crucially, the application of an SE issued at the end of 2018 to transactions throughout that year was deemed a violation of the principle prohibiting retroactive application (non-retroactivity). Thus, the DJP's legal basis was considered legally flawed.

The Tax Court affirmed that a sales discount is an element determining the net selling price and is an inseparable part of the goods sales transaction. Meanwhile, Article 23 of the Income Tax Law explicitly regulates tax withholding on certain incomes such as dividends, rent, royalties, or services, not the sale and purchase of goods.

Separating the price discount from its main transaction and classifying it as an object of Article 23 Income Tax was considered an incorrect interpretation. Forcing the tax imposition on past transactions was also feared to create double taxation.

The Judge also highlighted the DJP's procedural error in combining the potential tax from 12 months into one Tax Period of December 2018. Article 23 Income Tax should be due in each tax period, so determining it accumulatively was a procedural mistake.

Based on all these legal considerations, the Tax Court Granted PT BI's appeal in its entirety.

The correction of the Tax Base amounting to Rp 21,296,987,295.00 was Revoked.

This ruling provides legal certainty that sales discounts, which are part of the price of goods, cannot be separated and subjected to Article 23 Income Tax. It also reaffirms that DJP Circulars cannot be used to impose tax obligations retroactively.

A Comprehensive Analysis and the Tax Court Ruling on This Dispute is Available here.