Dealing with a Tax Audits

Jakarta, Ideatax -- In the 2021 Annual Report, the Directorate General of Taxes (2022) reported that the Audit Coverage Ratio in 2021 was 0.86%. In detail, the Audit Coverage Ratio (ACR) in 2021 consists of ACR for corporate taxpayers of 1.99% and ACR for individual taxpayers of 0.36%. Details of the ACR for 2021 can be seen in the following table:

 

Please note that the Audit Coverage Ratio compares the number of taxpayers audited with the number of taxpayers who submit tax returns. Compared to the same period the previous year, the ACR in 2021 has decreased. In 2020, the ACR for corporate taxpayers was 2.42% while the ACR for individual taxpayers was 1.11%. Then, what and how exactly is a tax audit? Through this article, we will explain it.

 

The legal basis for tax audits can be found in Law Number 6 of 1983 concerning General Regulations and Tax Procedures as amended by Law Number 7 of 1983 concerning Harmonization of Tax Regulations.

 

 Article 1 of the Law on General Regulations and Tax Procedures defines tax audit as a series of activities to collect and process data, information, and/or evidence carried out objectively and professionally based on an audit standard to test compliance with the fulfillment of tax obligations and/or for other purposes in the context of implementing the regulations of tax legislation.

 

In general, there are two audit objectives, namely testing compliance with the fulfillment of tax obligations and other purposes in the context of implementing the regulations of tax laws and regulations. Ministry of Finance Regulation Number 17 Year 2013 on Audit Procedures as amended by Ministry of Finance Regulation Number 184 Year 2015 stipulates that there are seven audit criteria in order to test taxpayer compliance:

1. Taxpayer submits an Overpayment Notification Letter;

2. Taxpayer has been granted a preliminary refund of tax overpayment

3. Taxpayer submits Tax Notification Letter Payable;

4. Taxpayer conducts merger, consolidation, division, liquidation, dissolution, or will leave Indonesia forever;

5. Taxpayer changes the fiscal year or bookkeeping method;

6. Taxpayer does not submit or submit Tax Return;

7. Taxpayer submits Tax Return and is selected for audit based on risk analysis.

 

 

Tax Auditors Obligations

In tax audits, both auditors and taxpayers have obligations. The obligations of tax auditors in conducting tax audits are as follows:

1. Submitting a Notification of Field Audit or Office Audit;

2. Showing the Tax Auditor’s ID and Audit notification letter to the Taxpayer at the time of conducting the Audit;

3. Showing a letter containing changes in the Tax Audit team to the Taxpayer if the composition of the Tax Audit team changes;

4. Conducting meetings with Taxpayers in order to provide explanations.

5. Pouring the results of meetings with taxpayers in the minutes of meetings with taxpayers;

6. Submitting the results of the audit to the Taxpayer;

7. Providing the right to attend to Taxpayers in the context of Final Discussion of Audit Results at a predetermined time;

8. Submitting an Examination Questionnaire to the Taxpayer;

9. Providing guidance to taxpayers in fulfilling their tax obligations in accordance with the regulations of tax laws and regulations by submitting written suggestions;

10. Returning books, records, and/or documents that form the basis of books or records, and other documents borrowed from Taxpayers; and

11. Keeping confidential to other parties who are not entitled to everything known or notified to him by the Taxpayer in the context of the Audit.

 

 

Obligations of Tax Auditor

In a tax audit, both the tax auditor and the taxpayer have obligations. The obligations of tax auditors in conducting tax audits are as follows:

1. Showing and/or lending books, records, and/or documents which are the basis of bookkeeping or recording, and other documents related to the income earned, business activities, free work of taxpayers, or objects payable to tax

2. Providing opportunities for auditors to access and/or download electronically managed data;

3. Providing an opportunity for the auditor to enter and inspect a place or room,

4. Attending meetings with auditor

5. Providing assistance to the auditor

6. Submitting a written response to the SPHP

7. Providing oral and/or written information required

 

 

Examination Period

There are two audit mechanisms to test the fulfillment of tax obligations, namely Field Audit and Office Audit. Field Audit generally takes longer than Office Audit. Article 15 of the Ministry of Finance Regulation No. 17/2013 stipulates that field audit has a testing period of six months and a reporting period of two months. Thus, the total time for a field audit is eight months.

 

On the other hand, an office audit has a testing period of four months and a reporting period of two months. Therefore, the total time of an office Audit is six months.

 

Both field and office audits can be extended by two months if they meet the following criteria:

1. Field Audit is extended to another Tax Period, Part of Tax Year, or Tax Year;

2. There is confirmation or request for data and/or information to third parties;

3. The scope of Field Audit covers all types of taxes; and/or

4. Based on the consideration of the head of the Examination implementation unit.

 

 

Completion of Audit

As the final part of the tax audit process, Field Audit and Office Audit can be completed with two mechanisms, namely terminating the audit by making a summary audit report or making an audit report as the basis for issuing a tax assessment letter and/or tax billing letter.

 

Termination of Audit by making a Summary Audit report may be conducted in the event that the Taxpayer, proxy, representative, or family member is not found within six months from the date of notification of Field Audit, or the Taxpayer does not fulfill the summons within four months from the summons in the context of Office Audit.

 

There are still many things and issues related to tax audits. If you need further assistance, please contact Ideatax.

 

Related Regulations

• Law Number 6 of 1983 concerning General Regulations and Tax Procedures as amended by Law Number 7 of 1983 2021 concerning Harmonization of Tax Regulations

• Ministry of Finance Regulation Number 17 of 2013 concerning Audit Procedures as amended by Ministry of Finance Regulation Number 184 of 2015