Lease Contract Expired, Is Asset Depreciation Still Deductible? Lessons from the PT TA Case

Legal Dispute: Validity of CPE Asset Depreciation Post-Lease Expiry (PT TA)

The Directorate General of Taxes (DGT) imposed a significant positive fiscal adjustment regarding the depreciation expenses of Customer Premise Equipment (CPE) assets owned by PT TA for the period of July to December 2019. This dispute originated from a difference in interpretation regarding the eligibility of depreciation charges after the primary lease contract with the lessee had expired, which the DGT argued violated the deductibility principles stipulated in Article 6 paragraph (1) of the Income Tax Law.

The Conflict: Interpretation of the Matching Principle

The Respondent (DGT) asserted that since the lease contract with PT Telkom ended in June 2019, the depreciation expenses for the second semester no longer had a direct connection to 3M (Obtaining, Collecting, and Maintaining income). On the other hand, the Taxpayer (PT TA) provided a robust rebuttal, stating that the CPE assets were factually still owned and utilized in the company's operations. Depreciation is merely a mechanism for systematically allocating acquisition costs over a 48-month useful life in accordance with Article 11 of the Income Tax Law.

Judicial Review: Ownership and Continued Control

The Tax Court Judges provided a clear perspective by prioritizing evidence of continued ownership and asset utilization. The Assembly found that the CPE assets were still recorded as fixed assets in the 2019 audited Financial Statements and had undergone reclassification to "installed CPE," indicating that the assets remained under the Taxpayer's control for productive purposes. The Judges opined that as long as assets are owned and there is no transfer of ownership, the Taxpayer is entitled and obligated to perform depreciation regardless of income fluctuations.

Implications: Depreciation as an Inherent Legal Right

This ruling reinforces that depreciation is both a legal right and an obligation inherent in the ownership of assets used for business activities. The expiration of a lease contract does not necessarily eliminate the right to fiscal depreciation. For Taxpayers, PT TA's absolute victory serves as an important precedent in defending the allocation of depreciation expenses for infrastructure assets that have a useful life exceeding the duration of a single lease contract.

Conclusion: Maintaining consistency in asset recording within financial statements and ensuring documents like physical inventory reports are available is the primary key to proving that assets remain controlled for productive purposes.