Rectification & Extension

Rectification/Correction

Tax rectification is the right of a Taxpayer to make amendments to their Tax Return (SPT) due to errors or incompleteness of data, to ensure that the reported tax data is correct and in accordance with the actual conditions. The errors referred to may include:

• Clerical errors: including errors in writing the name, address, Taxpayer Identification Number (NPWP), object tax number, location of the tax object, tax object sector, tax object sub-sector, decree or assessment number, type of tax, tax period, part of the tax year, tax year, due date, or other clerical errors that do not affect the amount of tax payable;

• Calculation errors: errors resulting from addition, subtraction, multiplication, and/or division of a number; or calculation errors resulting from the issuance of a Tax Assessment Letter, Tax Collection Letter, Decree, or a decision related to the tax field; and/or

• Mistakes in the application of certain provisions in tax regulations which include:

  • Mistakes in applying the tariff;

  • Mistakes in applying the percentage of the net income calculation norm;

  • Mistakes in applying administrative sanctions or administrative fines;

  • Mistakes regarding non-taxable income;

  • Mistakes in the calculation of income tax in the current year;

  • Mistakes in tax crediting;

  • Mistakes in applying the exchange rate;

  • Mistakes in applying the percentage of the taxable sales value;

  • Mistakes in applying the non-taxable sales value of the tax object; or

  • Mistakes in granting a reduction in the principal of land and building tax.

The objects of Rectification are:

• Notice of Tax Underpayment Assessment (SKPKB);

• Notice of Additional Tax Underpayment Assessment (SKPKBT);

• Notice of Nil Tax Assessment (SKPN);

• Notice of Tax Overpayment Assessment (SKPLB);

• Tax Collection Letter;

• Rectification Decree;

• Objection Decree;

• Decree on Reduction of Administrative Sanctions;

• Decree on Elimination of Administrative Sanctions;

• Decree on Reduction of Tax Assessment;

• Decree on Cancellation of Tax Assessment;

• Decree on Preliminary Refund of Tax Overpayment;

• Decree on Granting Interest Compensation;

• Tax Payable Notice (SPPT);

• Land and Building Tax Assessment Letter (Surat Ketetapan Pajak Pajak Bumi dan Bangunan);

• Land and Building Tax Collection Letter (Surat Tagihan Pajak Pajak Bumi dan Bangunan);

• Decree on Granting a Reduction in Land and Building Tax;

• Decree on Reduction of Land and Building Tax Administrative Fine; or

• Mutual Agreement Procedure Decree (Surat Keputusan Persetujuan Bersama).

For the aforementioned letters, Taxpayers may submit an application to the Director General of Taxes for rectification, the provisions of which are regulated in Article 8 of Law Number 6 of 1983 (UU KUP) as updated by Law Number 7 of 2021 (UU HPP). This is intended to grant the Taxpayer the right to correct an already submitted Tax Return (SPT).

Rectification of Tax Return (SPT)

A Taxpayer (on their own initiative) may rectify an already submitted Tax Return (SPT) by submitting a written statement, as long as the Director General of Taxes has not yet conducted an audit and is done 2 years before the expiration of the tax assessment period for the rectification of an SPT that states a loss or overpayment (Article 8 paragraphs (1) and (1a) of the UU HPP).

However, if this results in a greater tax liability in the Annual SPT or Periodical SPT, the Taxpayer shall be subject to an administrative sanction in the form of interest at the monthly interest rate determined by the Minister of Finance (calculated from the date the submission of the Tax Return ends until the date of payment, and is imposed for a maximum of 24 months). The interest rate referred to is the rate applicable on the date the sanction calculation begins and is calculated based on the formula: $(\text{benchmark interest rate} + 5\%) \div 12$; (Article 8 paragraphs (2), (2a), and (2b) of the UU HPP).

Voluntary Disclosure by Taxpayers

In addition, Taxpayers may voluntarily disclose their tax errors by revealing the incorrectness after the DJP has taken auditing action. This step can be taken if the Taxpayer:

• Has never reported their Tax Return (SPT); or

• Has reported their Tax Return (SPT), but the contents are incorrect or incomplete, for example, intentionally understating income or falsifying data.

Although the Taxpayer will still be subject to a penalty of 2 times the amount of tax, by doing this, the Taxpayer can at least avoid a more serious legal process (Article 8 paragraphs (3) and (3a) of the UU HPP).

Disclosure of Errors During an Ongoing Audit

Taxpayers may also admit errors in filing the Tax Return during the ongoing tax audit process. The applicable provisions include:

• It is done before the DJP submits the notification letter of the audit results.

• The Taxpayer must still pay the tax underpayment before the separate report is submitted, as well as the interest sanction calculated based on the formula: $(\text{benchmark interest rate} + 10\%) \div 12$ and is calculated from:

  • the due date for the Annual SPT;

  • the due date for payment for the Periodical SPT;

  • imposed for a maximum of 24 months (Article 8 paragraphs (4), (5), and (5a) of the UU HPP).

Rectification of SPT Due to Changes in Previous Year's Data

This is done when the Taxpayer receives a tax decision from previous years that contains a difference in the amount of tax loss (fiscal loss) from what was reported by the Taxpayer. This rectification must be carried out within 3 months after the receipt of the letter or decision, provided that the DJP has not yet conducted an audit (Article 8 paragraph (6) of the UU HPP).

Objection

Tax objection is the first legal remedy that a Taxpayer can pursue if they feel there is an inconsistency or unfairness in the tax assessment. The Taxpayer can submit an application to the DJP to review the tax assessment letter (SKP) or tax withholding/collection they received (Article 25 paragraph (1) of the UU KUP).

Object of Objection

Furthermore, the objects that can be subject to an objection include:

• Notice of Tax Underpayment Assessment (SKPKB);

• Notice of Additional Tax Underpayment Assessment (SKPKBT);

• Notice of Tax Overpayment Assessment (SKPLB);

• Notice of Nil Tax Assessment (SKPN); or

• Withholding or Collection of Tax by a Third Party deemed inappropriate.

To submit an objection, there are several requirements and procedures that the Taxpayer must meet, namely:

• The application must be submitted in writing in Indonesian.

• The objection letter must be submitted no later than 3 months from the date the tax assessment letter was sent, unless there are circumstances beyond the Taxpayer's control (for example, a natural disaster).

• The Taxpayer must include clear and strong reasons for their objection.

• One objection letter can only be submitted for one SKP.

• Before the objection letter is submitted, the Taxpayer must first pay the amount of their tax obligations that they have agreed to in the final discussion of the audit results.

It should be noted that if the Taxpayer does not meet the above requirements, the objection letter submitted will not be considered (Article 25 paragraphs (2), (3), (3a), and (4) of the UU HPP).

Objection Settlement Process

After the submitted objection is accepted, the DJP will conduct an examination and issue a decision within a maximum period of 12 months from the date the objection letter was received. If the DJP does not issue a decision within 12 months, the Taxpayer's objection is deemed granted. Before issuing a decision, the DJP may request additional information or data from the Taxpayer (Article 26 of the UU KUP).

The decision referred to may be in the form of:

• Granting part or all of the Taxpayer's objection;

• Rejecting the Taxpayer's objection; or

• Increasing the amount of tax payable.

If the objection is granted, the Taxpayer will receive a refund of administrative sanctions (fines or interest) previously paid. In addition, if the granted objection results in a tax overpayment, the DJP is obliged to refund the excess amount plus interest compensation of 2% per month for a maximum of 24 months if the refund is delayed (Article 27a of the UU KUP).

The refund referred to is calculated from:

• the payment date that caused the tax overpayment until the issuance of the Objection Decree for SKPKB and SKPKBT; or

• the tax assessment letter issuance date until the issuance of the Objection Decree for SKPN and SKPLB.

Conversely, if the objection is rejected or even causes the amount of tax payable to increase, the Taxpayer may continue the legal remedy by filing an appeal with the Tax Court.

Administrative Sanctions related to Objection Submission

If the submitted objection is rejected or partially granted, the Taxpayer will be subject to an administrative sanction in the form of a fine of 30% of the amount of tax based on the objection decision reduced by the tax that has been paid previously (Article 25 paragraph (9) of the UU HPP).

The amount of tax previously paid before the objection submission includes payments for amounts agreed upon and not agreed upon in the Final Discussion of Audit Results (PAHP). This administrative sanction is also imposed on the Taxpayer in the event that the Objection Decree:

• increases the amount of tax still payable;

• is appealed with a non-admissible appeal decision; or

• is appealed but then withdrawn.

However, the fine will not be imposed if:

• The Taxpayer withdraws the objection submission;

• The objection submission is not considered because it does not meet the formal requirements for submission (late submission of the letter) even though the material requirements are met; or

• The Taxpayer files an appeal against the Objection Decree.

Reduction, Elimination, and Cancellation of Administrative Sanctions or Tax Assessment Letters (SKP)

The DJP may reduce or eliminate administrative sanctions (interest, fines, or increases payable) and reduce or cancel incorrect Tax Assessment Letters (SKP) if the sanctions are imposed due to the Taxpayer's oversight or not due to their fault. Furthermore, this provision can also be applied due to the lack of thoroughness of the tax officer or the rejection of an objection submitted by the Taxpayer merely because it does not meet formal requirements (late submission of the letter) even though the material requirements are met (Article 36 paragraph (1) letters a and b of the UU KUP).

Furthermore, the DJP may also cancel the audit results or the tax assessment letter issued based on the audit or verification results carried out without:

• submitting the Notification Letter of Audit Results (SPHP) or Notification of Verification Results (PHV) to the Taxpayer; or

• the final discussion of the audit results or verification results with the Taxpayer (Article 36 paragraph (1) letter c of the UU KUP).

These provisions are intended to review the sanctions imposed on Taxpayers, especially if there are strong reasons that are not intentional faults of the Taxpayer. These provisions aim to ensure that the audit process is carried out procedurally and transparently.