In January 2026, the Minister of Finance conducted a surprise inspection of two steel companies located in the Millennium Industrial Estate, Cikupa, Tangerang, Banten. During the inspection, authorities identified indications that several Chinese-owned steel factories had failed to fulfill their value-added tax (VAT) payment obligations to the state.
According to the Minister of Finance, the alleged practices included accepting direct cash payments from buyers without issuing tax invoices and using bank accounts held by managers, shareholders, and employees to conceal actual turnover. The Minister was accompanied during the inspection by the Director General of Taxes and the Head of the Banten Regional Office of the Directorate General of Taxes. The potential state loss is estimated to reach IDR 4 trillion.
This case illustrates that negligence or deliberate failure to comply with VAT obligations may give rise not only to administrative penalties but also to criminal liability.
Criminal Aspects of VAT Under the KUP Law
Article 39, Paragraph 1, of Law of the Republic of Indonesia Number 6 of 1983 concerning General Provisions and Procedures of Taxation (Ketentuan Umum dan Tata Cara Perpajakan/KUP), as amended by Law of the Republic of Indonesia Number 7 of 2021, provides that any person who intentionally commits the following acts may be subject to criminal sanctions:
- failing to register for a taxpayer identification number (nomor pokok wajib pajak/NPWP) or not reporting a business to be confirmed as a taxable entrepreneur (pengusaha kena pajak/PKP);
- misusing or improperly using an NPWP or PKP status;
- failing to file a tax return;
- filing an incorrect or incomplete tax return;
- refusing to undergo a tax audit;
- presenting false bookkeeping or documents, or records that do not reflect actual circumstances;
- failing to maintain proper bookkeeping or present required documents;
- failing to retain books, records, or supporting documentation; and
- failing to remit the withheld or collected taxes.
These offenses are punishable by imprisonment of not less than six months and up to six years, as well as a fine of at least two times and up to four times the amount of underpaid or unpaid tax payable.
These provisions constitute the primary legal basis for criminal liability for VAT under Indonesian tax law.
Criminal Sanctions for Issuing and Using Tax Invoices
Article 39 of the KUP Law further stipulates that anyone who intentionally:
- issues and/or uses a tax invoice not supported by an actual transaction; or
- issues a tax invoice without being officially confirmed as a PKP,
may be subject to imprisonment for a minimum of two years and a maximum of six years, and a fine of not less than two times and up to six times the amount of tax stated in the tax invoice.
This provision accentuates that the issuance or use of fictitious or unlawful tax invoices constitutes a serious VAT-related criminal offense.
Criminal Tax Provisions Under the Criminal Code
Criminal tax-related conduct is also addressed in Article 607 of Law of the Republic of Indonesia Number 1 of 2023 concerning the Criminal Code. This article states that any person who places, transfers, diverts, spends, pays, grants, entrusts, conceals, or disguises the origin of proceeds derived from tax crimes, including those who receive or control such proceeds, may be subject to money laundering provisions.
Accordingly, VAT violations not only carry the risk of criminal tax sanctions but can also escalate into criminal charges for money laundering.
Preventing Criminal VAT Risks
To mitigate the risk of criminal tax sanctions and potential money laundering exposure, particularly in relation to VAT compliance, taxpayers should consider the following measures:
- register as a PKP if the annual turnover exceeds IDR 4.8 billion;
- file VAT returns on time, no later than the end of the following month;
- ensure VAT returns are filed accurately, completely, and clearly;
- remit collected VAT no later than the end of the month following collection;
- avoid crediting input VAT from non-genuine or fraudulent transactions; and
- engage a competent and reputable tax consultant.
Whether your company operates domestically or internationally and needs help with VAT compliance, Ideatax can provide tailored guidance.
Also Read:
https://ideatax.id/articles/updates-to-the-05-msme-final-income-tax-and-its-business-impact
https://ideatax.id/articles/article-26-withholding-tax-on-foreign-taxpayers
https://ideatax.id/articles/pmk-1122025-updates-to-the-tax-treaty-implementation-procedures
