Winning Against the Tax Office's "Magic" Formula: How PT BDU Proved Input Tax Can Be Separated

PT BDU Input Tax Dispute: Direct Attribution vs. the Proportional Formula P = PM x Z

Disputes over Input Tax credits often result in the use of proportional formulas by tax examiners when a Taxpayer is deemed to be making mixed deliveries. In this dispute, the Respondent applied the formula P = PM x Z to adjust PT BDU's Input Tax by IDR 1.49 billion, assuming that Input Tax for cigarette distribution activities and Advertising & Promotion (A&P) service activities could not be accurately separated. The Respondent considered the operational costs incurred to be joint costs that must be allocated proportionally based on the turnover ratio.

Judicial Resolution: Evidence of Direct Attribution

However, the legal resolution from the Board of Judges provided a breath of fresh air for taxpayer legal certainty. The Judges conducted a thorough examination of the material evidence presented by PT BDU, including thousands of tax invoices and contracts showing that each acquisition of goods/services could be directly attributed to each business line. Referring to Article 9 Paragraph (5) of the VAT Law, the Judges emphasized that the proportional formula may only be used if and only if the Input Tax allocation truly cannot be determined with certainty.

Conclusion: Overturning the Proportionality Assumption

Since PT BDU was able to present concrete evidence of the separation of tax invoices between distribution and other service activities, the Respondent's use of the formula was declared to lack a strong legal basis. This ruling serves as an important reminder for Taxpayers of the vitality of organized documentation to refute the tax authority's proportionality assumptions.