Tax refunds sit at the heart of a fair tax system. Yet sometimes they are framed as a drain on public finances rather than what they legally are. Under the law, taxpayers are entitled to tax refunds.
What Is a Tax Refund?
A tax refund arises when a taxpayer has paid more than their actual liability, with the overpayment returned after verification by the tax authority. Overpayments typically stem from:
- overpayments relative to actual tax due;
- calculation errors; and
- tax credits exceeding liabilities.
At its core, the mechanism ensures that taxpayers do not finance the state beyond what the law requires.
Mounting Scrutiny Over Tax Refunds
Recent remarks by Minister of Finance Purbaya Yudhi Sadewa revealed the Ministry of Finance’s consideration to involve the Financial and Development Supervisory Agency (Badan Pengawasan Keuangan dan Pembangunan/BPKP) in reviewing tax refund claims submitted between 2020 and 2025.
The proposal follows indications of leakages in the tax refund system, reportedly reaching IDR 361 trillion in 2025. Consequently, the government prompted calls for tighter oversight of tax refund applications, particularly in the natural resources sector.
In parallel, the Chairman of Commission XI of the House of Representatives has suggested temporarily suspending tax refund policies during crises to safeguard fiscal resilience. This view reflects a broader perception of tax refunds as a strain on the state budget.
Regulatory Changes in the Pipeline
The government is now drafting new rules on preliminary refund of tax overpayments. They discussed the draft regulation during a plenary meeting of the Minister of Finance, held by the Directorate General of Legislation under the Ministry of Law in early April 2025.
The draft regulation follows up on the Letter of the Director General of Taxes, Number S-38/PJ/2026, dated April 3, 2026, regarding the request to finalize and align the procedures governing preliminary tax refunds.
Legal Basis for Tax Refunds
Under Indonesia’s tax framework, both regular refunds and preliminary refunds are designed to uphold justice for taxpayers.
They are grounded in the Law of the Republic of Indonesia concerning General Provisions and Procedures of Taxation (KUP Law), as last amended by the Law of the Republic of Indonesia concerning Harmonization of Tax Regulations (HPP Law).
Important provisions include:
- Article 17B of the KUP Law on tax refund.
- Articles 17C and 17D of the KUP Law on preliminary refund of tax overpayments.
Further details are outlined in the Minister of Finance Regulation Number 39/PMK.03/2018, and its amendments. The regulation sets out procedures, eligibility criteria, and application processes for tax refund and preliminary tax refund.
Preliminary Refund of Tax Overpayments
Unlike standard tax refunds, preliminary tax refunds allow eligible taxpayers to recover overpayments more quickly without undergoing a full audit upfront. This incentive is typically available for compliant taxpayers and low-risk taxpayers.
The policy rationale is to improve liquidity and support the business climate. Faster tax refunds mean companies can redeploy funds into operations or investment without unnecessary delays.
Globally, accelerated tax refund systems are common. Jurisdictions such as Singapore and Australia have implemented efficient mechanisms that enhance investment appeal, which offer useful benchmarks for Indonesia’s ongoing tax administration reforms.
A Right, Not a Policy Lever
Indonesian law clearly defines both tax refunds and preliminary tax refunds as taxpayer rights rather than government concessions.
The Taxpayer Charter reinforces this principle. Taxpayers are entitled to pay no more than what they owe. Any overpayment belongs, by right, to the taxpayer, as it is a constitutional guarantee.
In the future, improving risk management and strengthening data integration across government agencies will be essential. These steps can help ensure that tax refund processes remain transparent, accountable, and legally certain.
Also Read:
https://ideatax.id/articles/all-you-need-to-know-about-income-tax-on-bond-interest
https://ideatax.id/articles/navigating-tax-payments-in-the-new-coretax-system
https://ideatax.id/articles/article-26-withholding-tax-on-foreign-taxpayers
