Tax Court Decision Number PUT-004953.16/2021/PP/M.XVIIIA Tahun 2025 provides a fundamental affirmation regarding the limits of interpreting the phrase 'business activities' within the Indonesian Value Added Tax (VAT) Law, particularly concerning the right to credit Input Tax (PM) for taxpayers experiencing a non-operational status or zero turnover. The dispute centered on a correction of Input Tax amounting to IDR 16,127,000.00 made by the Directorate General of Taxes (DGT) against PT BML, a tin smelter company that had halted production due to capital constraints and bankruptcy status. The DGT argued that the Input Tax could not be credited due to the absence of operational activities generating sales, contrary to Article 9 paragraph (8) letter b of the VAT Law.
The Directorate General of Taxes (DGT) based its correction on two main pillars. First, the non-compliance of the Taxpayer (Appellant) who failed to submit crucial documents (General Ledger, Financial Statements) during the audit and objection phases, thereby invoking Article 26A paragraph (4) of the KUP Law. Second, the substantive correction was based on the fact that the company reported zero sales (IDR 0.00) and was physically non-operational. From this perspective, the credited Input Tax was deemed not directly related to business activities, which was narrowly interpreted as revenue-generating activities.
Conversely, PT BML refuted this correction, stating that although production was halted, the incurred costs were for maintaining the company's going concern, such as essential logistics costs and consulting services. They affirmed that supporting documents had been submitted during the appeal process and that the corrected Input Tax Invoices (FPM) were valid and had been paid.
The Tax Court Panel adopted a position that mediated procedural and substantive aspects. Procedurally, the Panel upheld the DGT's action of not considering new evidence submitted at the appeal stage. However, substantively, the Panel rejected the DGT's argument that narrowed the definition of business activities solely to sales/production activities. The Panel was of the opinion that as long as the costs and Input Tax arose in the context of maintaining the company's existence or preparing for core activities, the Input Tax remained creditable. The key to resolving this dispute lay in the PKPM confirmation result (Request for Information on Input Tax Crediting) carried out by the DGT itself. The confirmation result stating that the Input Tax Invoices "exist" and the VAT had been paid by the Appellant factually validated the right to credit.
This decision strengthens the jurisprudence in the Tax Court that the going concern principle must be considered in crediting Input Tax. A company in a non-active or restructuring phase still has the right to credit VAT related to essential costs, provided the tax invoices are valid and the VAT has been paid. The impact of this decision provides legal certainty for Taxpayers facing economic challenges or bankruptcy, asserting that the rejection of Input Tax cannot be based merely on zero sales turnover. It also emphasizes the importance of cross-confirmation between tax authorities, where the DGT's own internal confirmation results can nullify a correction based on the assumption of non-existent business activities.
By basing its decision on the formal validity of the Tax Invoice and proof of VAT payment through the PKPM confirmation, the Tax Panel decided to Grant the Taxpayer's Appeal in Full. This decision effectively cancels the Input Tax correction of IDR 16,127,000.00 along with the accompanying administrative penalty increase, providing a crucial lesson for Taxpayers to prioritize evidence of Input VAT payment and to document all going concern-related costs.
A Comprehensive Analysis and the Tax Court Decision on This Dispute Are Available Here
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