Audit of the Purchasing Side: Technical Procedure for Equalization of Expenses and Assets in Corporate CIT Returns with Input VAT Tax Base in Periodic Returns

In the modern tax audit ecosystem in Indonesia, especially with the enactment of Minister of Finance Regulation Number 15 of 2025 which prioritizes transparency and strong databases, cross-referencing techniques have become vital instruments for the tax authorities. One of the most frequently used testing techniques to test the validity of a Taxpayer's purchasing and expenditure side is the Equalization between Expense/Purchase/Asset Acquisition accounts in the Annual Corporate Income Tax (CIT) Return with the Tax Base (DPP) of Input VAT credited in the Periodic VAT Return.

This article will comprehensively outline the procedures, technical logic, and critical points in the equalization process, referring to audit standards in SE-65/PJ/2013, guidelines for compiling Audit Working Papers (KKP) in SE-08/PJ/2012, and DGT technical training materials.

Basic Concept: Testing the Validity of Goods and Cash Outflows

Expense/Input VAT Equalization is an audit technique to match the amount of purchases (raw materials, finished goods, and assets) and operational costs with the amount of Input VAT Tax Base (DPP) reported.

The basic logic of this test is the "Mirroring Transactions" concept:

1. CIT Side (Expenses/Assets): Every company expenditure for the purchase of Taxable Goods (BKP) or Taxable Services (JKP) will be recorded as Cost of Goods Sold (COGS), Operating Expenses, or capitalized as Fixed Assets.
2. VAT Side (Input Tax): If the purchase is made from a Taxable Entrepreneur (PKP), the Taxpayer will receive an Input Tax Invoice that can be credited (Form 1111 B1/B2) or cannot be credited (Form 1111 B3).

Discrepancies between these two figures serve as a risk indicator (red flag). If the Input VAT Base is significantly larger than the purchases recorded in CIT, there is an indication of fictitious purchases or invalid tax invoices. Conversely, if Purchases in CIT are significantly larger, the Auditor will investigate whether there are missed Withholding Tax obligations (Article 22/23) or unreasonable purchases from non-PKPs.

Stage 1: Data Collection and Account Mapping

The audit procedure begins with collecting raw data. Based on the Tax Audit Preparation Training Module, the Auditor will pull data from:

1. Annual Corporate CIT Return (Form 1771):
   • Attachment I (Fixed Asset Acquisitions).
   • Attachment II (Details of COGS and Business Expenses).
2. Periodic VAT Returns (January to December):
   • Form 1111 B1 (Import of Taxable Goods).
   • Form 1111 B2 (Acquisition of Domestic BKP/JKP that can be credited).
   • Form 1111 B3 (Acquisitions that cannot be credited – if filled out completely).
3. Financial Statements & General Ledger (GL): Details of purchase accounts, rent expenses, service fees, and assets.

Stage 2: Technical Equalization Calculation Procedure

Referring to the Audit Working Paper (KKP) format in SE-08/PJ/2012 (Index B.2.1.1) and technical guidelines SE-65/PJ/2013, here are the technical reconstruction steps performed by the Auditor:

A. Determining Total "Spending" According to Corporate CIT (Left Side)

The Auditor sums up all expenditure items that naturally constitute VAT objects. This is not limited to stock purchases only.
Components: Purchase of Raw Materials/Merchandise + Operating Expenses (Rent, Professional Services, Ads, etc.) + Fixed Asset Additions (Capex) + Intangible Asset Additions.

B. Determining Total Input VAT Tax Base (Right Side)

The Auditor recapitulates the Tax Base from all Input Tax Invoices, PIB Documents (Notification of Goods Import), and other equivalent documents, whether credited or not.

C. Performing Reconciliation (Adjustment)

Differences between Figure A and Figure B are inevitable. The key to the audit is verifying the causes of these differences. Adjustment variables include:

1. Deducting Variables (Deductible from PPh Badan Figure):

• Purchases from Non-PKP: Purchases from MSMEs or vendors who are not yet PKP will not have Tax Invoices.
• Non-BKP/Non-JKP Purchases: Mining products, certain basic necessities, or exempted services (financial/insurance) not subject to VAT.
• Salaries and Wages: This largest expense component is not a VAT object and must be excluded.
• Depreciation and Amortization: This is a cost allocation, not a current year transaction.

2. Adding Variables (Add-back):

• Purchase Down Payments (Advance Payment): Recorded in CIT as Current Assets, but Input Tax Invoice is issued upon payment.
• Purchase Payables (Accrued Expenses): Expenses recognized (Accrual), but Tax Invoice not yet received or issued next year.

Analysis of Findings and Critical Audit Points

In practice, as alluded to in the Audit Technique Teaching Materials, there are several crucial issues that often become correction findings:

1. Fictitious Tax Invoices (TBTS - Not Based on Actual Transactions)
If the Input VAT Base is much higher than the flow of goods/expenses recorded in the general ledger, the Auditor will suspect illegitimate Input Tax crediting to reduce VAT Underpayment.

2. Unreported Asset Capitalization
If the company has a large Input VAT Base but small COGS, it might be due to machinery or factory purchases. If asset value does not increase accordingly, it indicates hidden assets or capitalized costs being expensed all at once.

3. Crediting Timing Differences
The Auditor will examine whether last year's Tax Invoices were credited this year, or vice versa. Taxpayers must provide a "List of Tax Invoices Credited in Different Periods".

4. PIB (Notification of Goods Import) Validity
For Import VAT, the Auditor will cross-check with external Customs data (DJP Portal) to ensure the import value (CIF) in CIT matches the import value in VAT.

The Role of PMK 15 of 2025 in Equalization Dispute Resolution

Under the PMK Number 15 of 2025 regime, audit procedures provide a fairer yet stricter space for Taxpayers to clarify equalization discrepancies:

1. Interim Finding Discussion: Discrepancies must be communicated in the Interim Discussion before the SPHP is issued. This is the opportunity to provide detailed reconciliations.
2. Quality of Evidence: Auditors are prohibited from making corrections solely based on assumptions. They must perform a cash flow or payables test.
3. Taxpayer Response: Taxpayers have time (e.g., 5 working days) to provide written responses and supporting evidence for the discrepancy in the SPHP.

Implications of Equalization Results

Failure to explain equalization discrepancies can have a double impact:

1. Corporate CIT Correction: If Expenses > VAT Base (without evidence), expenses are deemed invalid (Non-Deductible), increasing CIT Underpayment.
2. VAT Correction: If VAT Base > Expenses, Input Tax Invoices may be cancelled, resulting in VAT Underpayment plus significant sanctions.

Conclusion and Professional Recommendation

Equalization of Expenses with Input VAT is a fundamental "Material Compliance Audit" technique. In the Coretax era, where data is integrated real-time, Taxpayers can no longer hide data inconsistencies.

It is recommended for companies to:

• Perform Monthly/Annual Self-Equalization: Create reconciliation working papers before the Annual Return is filed.
• Archive Non-PKP Documents: Keep payment proofs, invoices, and KTP/NPWP of non-PKP vendors neatly.
• Clear COA Mapping: Separate expense accounts that have VAT from those that do not at the Chart of Accounts level.

Data readiness and neat equalization working papers are the Taxpayer's best defense in facing increasingly data-driven tax audits.

Reference Sources:

• [PMK 15 Year 2025] - Procedures for Tax Audit.
• [SE-65/PJ/2013] - Guidelines for the Use of Audit Methods and Techniques.
• [SE-08/PJ/2012] - Guidelines for Compiling Audit Working Papers (KKP Purchases based on VAT DPP).
• [Bahan Ajar Metode-Teknik-dan-Prosedur-Pemeriksaan] - Equalization formulas and balance matching procedures.
• [Modul Diklat Persiapan Pemeriksaan Pajak] - Financial data analysis and equalization.
• [Transcript RTD PMK 15 Year 2025] - Audit concepts in the Coretax era.