Keeping Cash Flow Fair with Accelerated Restitution

By: Arianta John Bangun

Overview
In the author's previous writing, the author has discussed Tax Saving Strategies through the application of a Certificate of Exemption (SKB) for Import Income Tax Article 22, which will impact healthy cash flow for newly established companies, which usually experience losses. In this paper, the author will discuss other strategies taxpayers can use to maintain healthy cash flow, especially for taxpayers who experience losses in their business.

As stipulated in Article 17B of Law Number 6 of 1983 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2021, the audit process related to the application for refund of tax overpayment lasts for a maximum of 12 (twelve) months including the issuance of Tax Assessment Letter, since the application letter is received completely. Tax overpayments are usually caused because the tax credit is greater than the tax payable or should not be payable. There are two types of tax overpayments: value-added, Value Added Tax overpayments, and Income Tax overpayments.

Tax Credit for Income Tax is the tax paid by the taxpayer himself plus the principal tax payable in the Tax Collection Letter because the Income Tax in the current year is not or underpaid, plus the tax withheld or collected, plus the income tax paid or payable abroad, minus the preliminary refund of excess tax, which is deducted from the tax payable. Meanwhile, the Tax Credit for Value Added Tax is the Creditable Input Tax after deducting the preliminary refund of excess tax or after deducting the compensated tax, which is deducted from the tax payable.

Corporate taxpayers can apply for a refund of tax overpayment for two types of taxes, namely Value Added Tax (VAT) and Corporate Income Tax (PPh) 25/29. About VAT, taxpayers may apply for a refund of tax overpayment at the end of the fiscal year. However, taxpayers can apply for a refund of tax overpayment related to VAT at each tax period if:

1. The taxpayer conducts the export of Tangible Taxable Goods;
2. Taxpayer performs delivery of Taxable Goods and/or delivery of Taxable Services to Value Added Tax Collector;
3. The taxpayer performs the Delivery of Taxable Goods and/or Taxable Service for which Value Added Tax is not collected;
4. The taxpayer conducts the export of Intangible Taxable Goods;
5. The taxpayer conducts the export of Taxable Service

 

As for the overpayment of corporate income tax, taxpayers must submit an application for refund of the overpayment of tax at the end of the fiscal year.
In addition to conducting an audit related to the application for refund of tax overpayment, the Directorate General of Taxes (DGT) can also only conduct a research process on the application for refund of tax overpayment for Certain Criteria Taxpayers, Certain Requirements Taxpayers, and Low-Risk Taxable Entrepreneurs. This is regulated in Articles 17 C and 17 D of Law Number 6 of 1983 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2021, and its derivative rules, namely Minister of Finance Regulation Number 39/PMK.03/2018 concerning Procedures for Preliminary Refund of Tax Overpayments as amended several times, most recently by Minister of Finance Regulation. Number 209/PMK.03/2021. The research process related to the application for refund of tax overpayment lasts for a maximum of 3 (three) months for Income Tax and 1 (one) month for value-added tax, including the issuance of the Decision Letter on Preliminary Refund of Tax Overpayment since the application letter is received in full. This process is called the Preliminary Refund of Excess Tax Payment or Accelerated Restitution Process. As stipulated in Article 1 of Law Number 6 of 1983 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2021, which regulates General Provisions, Examination includes activities to collect and process data, information, and/or evidence carried out objectively and professionally based on an examination standard to test compliance with the fulfillment of tax obligations and/or for other purposes in the context of implementing the provisions of tax legislation, while Research includes an assessment of the completeness of filling out the Notification Letter and its attachments, including an assessment of the correctness of the writing and calculation. From here, we can understand why the audit process takes longer than the research process.

Although the DGT has issued a Decree of Preliminary Refund of Excess Tax and has made a preliminary refund of excess tax, the DGT can still conduct an audit of the taxpayer and issue a Tax Assessment Letter. And, if based on the results of the audit the Director General of Taxes issues an Underpaid Tax Assessment Letter, the amount of tax deficiency of the taxpayer has an additional administrative sanction in the form of an increase of 100% (one hundred percent) of the amount of tax underpayment. To avoid the issuance of the Underpaid Tax Assessment Letter, taxpayers must carry out their obligations by applicable tax laws. Taxpayers must also make their tax payments and reports on time, both for monthly and annual taxation. In addition, taxpayers must also reconcile and equalize taxation every month and review all aspects of taxation that have been carried out and those that have not been carried out, including issues that arise related to taxation.

 

Certain Criteria Taxpayers
Based on Article 17C of Law Number 6 of 1983 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2021, taxpayers who meet certain criteria are taxpayers who meet the following criteria:

1. On time in submitting the Tax Return;
2. Do not have tax arrears for all types of taxes, except for tax arrears that have obtained permission to install or postpone tax payments;
3. Financial statements audited by a public accountant or government financial supervision institution with an unqualified opinion for 3 (three) consecutive years; and
4. Never been convicted of a criminal offense in the field of taxation based on a court decision that has permanent legal force within the last 5 (five) years.

 

To be designated as a Specified Criteria Taxpayer, a taxpayer may apply to the Tax Service Office (KPP), where the taxpayer is registered no later than January 10. Specified Criteria Taxpayers may be granted a Preliminary Refund of overpayment of Income Tax and Value Added Tax. The decision to determine the Specified Criteria Taxpayer is valid from the date of determination until the determination is revoked by the Director General of Taxes. The decision to the Specified Criteria Taxpayer may be revoked if the taxpayer is:

1. Late submission of Annual Tax Return;
2. Late in submitting a Periodic Tax Return for a type of tax in 2 (two) consecutive tax periods;
3. Late in submitting a Periodic Tax Return for a type of tax for 3 (three) Tax Periods in 1 (one) calendar year; or
4. There is an open preliminary evidence examination or criminal investigation action in the field of taxation.

Specified Requirement Taxpayer
Based on Article 17D of Law Number 6 of 1983 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2021, what is meant by Specific Requirements Taxpayer is a taxpayer who meets the following criteria:

1. Individual taxpayers who do not run a business or do free work;
2. Individual taxpayers who run a business or do free work with the amount of business circulation and the amount of overpayment up to a certain amount;
3. Corporate taxpayer with business turnover and overpayment amount up to a certain amount; or
4. Taxable Entrepreneurs who submit Periodic Notification Letter of Value Added Tax with the amount of delivery and the amount of overpayment up to a certain amount.

 

Further provisions regarding Specific Requirements Taxpayers are regulated in Article 9 of the Minister of Finance Regulation Number 39/PMK.03/2018 concerning Procedures for Preliminary Refund of Excess Tax Payment as amended several times lastly by the Minister of Finance Regulation Number 209/PMK.03/2021. In the regulation, Specified Requirement Taxpayers are taxpayers who meet the following criteria:

1. Individual taxpayers who do not conduct business or independent work who submit Annual Income Tax Returns with overpayment of restitution;
2. Individual taxpayers conducting business or independent work who submit Annual Income Tax Returns with an overpayment of restitution at a maximum amount of Rp100,000,000.00 (one hundred million rupiah);
3. Corporate Taxpayer who submits Annual Income Tax Return with overpayment of restitution with the maximum overpayment amount of Rp1,000,000,000.00 (one billion rupiah); or
4. Taxable Entrepreneurs who submit Periodic Value Added Tax Return with an overpayment of restitution with the maximum amount of overpayment of IDR5,000,000,000.00 (five billion rupiah).

Certain taxpayers may be granted a Preliminary Refund of Income Tax Overpayment and Value Added Tax. To become a Specified Requirements Taxpayer, the taxpayer does not need to apply to the Tax Service Office (KPP) where the taxpayer is registered, but can directly apply for a preliminary refund of tax overpayment, as long as the taxpayer has met the criteria mentioned above.

Low-Risk Taxable Entrepreneurs
Taxable Entrepreneurs who carry out certain activities designated as Low-Risk Taxable Entrepreneurs may be granted a Preliminary Refund of Value Added Tax overpayments at each Tax Period. Based on Article 13 of the Minister of Finance Regulation Number 39/PMK.03/2018 concerning Procedures for Preliminary Refund of Tax Overpayments as amended several times, most recently by the Minister of Finance Regulation Number 209/PMK.03/2021, Low-Risk Taxable Entrepreneurs include:

1. Companies whose shares are traded on the stock exchange in Indonesia;
2. State-Owned Enterprises and Regional-Owned Enterprises by the provisions of laws and regulations governing State-Owned Enterprises and Regional-Owned Enterprises;
3. Taxable Entrepreneurs who have been designated as Customs Major Partners by the provisions in the Minister of Finance Regulation governing Customs Major Partners;
4. Taxable Entrepreneurs that have been designated as Authorized Economic Operator by the provisions in the Minister of Finance Regulation governing the Authorized Economic Operator;
5. Manufacturers or producers other than Taxable Entrepreneurs as referred to in number 1 through number 4, who have a place to carry out production activities;
6. Taxable entrepreneurs who meet certain requirements;
7. Pharmaceutical wholesalers who have: (a). Pharmaceutical Distribution Certificate or Pharmaceutical Wholesaler License by provisions of laws and regulations governing pharmaceutical wholesalers; and (b). Good Medicine Distribution Method Certificate by the provisions of laws and regulations governing pharmaceutical wholesalers; and b. Good Medicine Distribution Method Certificate laws and regulations governing good drug distribution methods
8. Distributor of Medical Devices that have: (a). Medical Device Distribution Certificate or Medical Device Distributor License by the provisions of laws and regulations governing medical device distributors; and (b). Certificate of Good Medical Device Distribution Methods by the provisions of laws and regulations governing good medical device distribution methods; or
9. A company that is directly owned by a State-Owned Enterprise with whose financial statements are consolidated with the financial statements of the parent State-Owned Enterprise by generally accepted accounting principles.

Taxable Entrepreneurs who conduct certain activities include:

1. Export of Tangible Taxable Goods;
2. Delivery of Taxable Goods and/or delivery of Taxable Services to the Value Added Tax Collector;
3. Delivery of Taxable Goods and/or Taxable Services for which Value Added Tax is not collected;
4. Export of Intangible Taxable Goods;
5. Export of Taxable Service

To be designated as a Low-Risk Taxable Entrepreneur, the Taxable Entrepreneur may apply to the Tax Office where the Taxable Entrepreneur is confirmed.

 

Conclusion
Tax overpayments are usually caused because the tax credit is greater than the tax payable or should not be payable. There are two types of tax overpayments, namely Value Added Tax overpayments and Income Tax overpayments. In general, companies that experience Value Added Tax overpayments are those whose activities include export-import, delivery to VAT collectors, delivery where VAT is not collected, and companies that experience losses, causing the input VAT credited to be greater than the output VAT. As for companies that experience overpayment of Income Tax, they usually experience losses, causing their tax credit to be greater while the tax payable is not there.

For tax overpayments, taxpayers are given the right to apply for a refund of excess tax. 2 (two) mechanisms can be done by taxpayers related to the application for refund of excess tax, namely the mechanism for Application for Refund of Excess Tax with Audit Process and the mechanism for Application for Refund of Excess Tax with Acceleration or Preliminary Process. Based on KUP Law Article 17 B, the period of Application for Refund of Excess Tax under the Audit Process lasts for 12 (twelve) months from the time the application is received in full until the issuance of the Tax Assessment Letter (SKP), while based on KUP Law Article 17 C, the period of Application for Refund of Excess Tax under the Acceleration or Preliminary Process lasts for a maximum of 3 (three) months for Income Tax and 1 (one) month for Value Added Tax, including the issuance of the Decision Letter for Refund of Excess Tax, since the application letter is fully received. 
Taxpayers who can utilize the mechanism of Request for Preliminary Refund of Excess Tax Payment (Accelerated Restitution) are Certain Criteria Taxpayers, Certain Requirements Taxpayers, and Low-Risk Taxable Entrepreneurs. 

Even though the Director General of Taxes has issued a Decision Letter on Preliminary Refund of Excess Tax and has made a preliminary refund of excess tax, the Director General of Taxes can still conduct an audit of the taxpayer and issue a Tax Assessment Letter. And, if based on the results of the audit, the Director General of Taxes issues an Underpaid Tax Assessment Letter, the amount of tax deficiency of the taxpayer is subject to additional administrative sanctions in the form of an increase of 100% (one hundred percent) of the amount of tax underpayment.

To avoid the issuance of the Underpaid Tax Assessment Letter, taxpayers must carry out their obligations by applicable tax laws. Taxpayers must also make payments and report their taxation on time, both for monthly and annual taxation. In addition, taxpayers must also reconcile and equalize taxation every month and review all aspects of taxation that have been carried out and those that have not been carried out, including issues that arise related to taxation.

 

Recommendation
The author recommends that taxpayers who experience tax overpayments can choose to submit a Preliminary Refund Application because this application mechanism is more effective and efficient. Effective because the tax overpayment requested by the taxpayer is immediately paid by the Director General of Taxes as long as the research process conducted by the Director General of Taxes has fulfilled the applicable provisions, and efficient because the research process conducted by the Director General of Taxes is relatively short and does not take taxpayer's time.

Related Provisions

• Law Number 6 of 1983 concerning General Provisions and Tax Procedures has been amended several times, most recently by Law Number 7 of 2021 concerning Harmonization of Tax Regulations.
• Minister of Finance Regulation Number 39/PMK.03/2018 concerning Procedures for Preliminary Refund of Tax Overpayments as amended several times lastly by Minister of Finance Regulation Number 209/PMK.03/2021.
• Law Number 8 of 1983 concerning Value Added Tax on Goods and Services and Sales Tax on Luxury Goods as amended several times, most recently by Law Number 7 of 2021 concerning Harmonization of Tax Regulations.