Understanding the Tax Collection Process

In the Annual Report of 2021, the Directorate General of Taxes (2022) reported that during the year, the amount of disbursement of tax receivables through collection actions reached IDR 19.5 trillion rupiah. In further detail, it is known that the largest amount of tax receivable disbursement during 2021 came from the issuance of a letter of reprimand with a disbursement amount of IDR 9.1 trillion followed by the action of distress warrant with a disbursement of IDR 2.4 trillion and the action of blocking accounts with a disbursement value of IDR 871 billion. The details of the disbursement can be seen in the following table:

The table above shows that generally the more collection actions, the higher the value of tax receivables disbursement. The most common collection actions taken during 2021 are in the form of issuance of Letter of Reprimand followed by notification of Distress warrant, issuance of warrant of seizure, account blocking, auction of seized goods, restriction and seizure. Then, what and how are the active collection actions taken by the DGT to collect tax receivables? In this article, we will discuss the tax collection process.

The main legal basis for the tax collection process can be found in Law Number 6 of 1983 concerning General Provisions and Tax Procedures as amended by Law Number 7 of 2021 concerning Harmonization of Tax Regulations. Article 20 paragraph (1) of the KUP Law regulates that against the amount of tax accrued based on STP, SKPKB, SKPKBT, Correction Decree, Objection Decree, Decision of Appeal and Judicial Review which causes the amount of accrued tax to increase, which is not paid by the taxpayer, tax collection action is performed with a distress warrant.

Furthermore, the KUP Law also regulates that the collection action may be changed to immediate and simultaneous collection action if there are indications:

• The Taxpayer will leave Indonesia permanently or intends to do so;
• The Taxpayer transfers the goods owned or controlled in order to stop or minimize the activities of the company or work carried out in Indonesia;
• There are signs that the Taxpayer will dissolve the business entity or merge or split the business, or transfer the company owned or controlled, or make other changes in form;
• The business entity will be dissolved by the state; or
• There is a seizure of the Taxpayer's goods by a third party or there are signs of bankruptcy.

 

Although the KUP Law has regulated the basis of tax collection actions and the reasons for immediate and simultaneous collection actions, this Law does not regulate in detail the stages of the tax collection process.

Legal basis related to the tax collection process can also be found in Law No. 19/1997 on Tax Collection with a Writ of Compulsion as amended by Law No. 19/2020, hereinafter referred to as the Tax Collection Law.

The Tax Collection Law regulates that tax collection is a series of actions by tax bailiffs against taxpayers to pay off tax debts and tax collection costs by means of:

• reprimanding/warning
• performing immediate and lump sum collection
• notifying a distress warrant
• proposing restriction
• performing seizure
• performing confiscation
• selling the seized goods

Based on the description above, it is known that the first active collection action is carried out by the bailiff or authorized official if the taxpayer does not issue a reprimand letter. Regulation of the Minister of Finance Number 61 of 2023 regulates that the authorized official, in this case the bailiff, issues a reprimand letter in the event that the taxpayer does not pay the tax debt within seven days of the payment due date.

Furthermore, if within 21 days from the date of issuance of the reprimand letter, the taxpayer has not paid the tax debt, the authorized official shall issue a letter of compulsion and notify the taxpayer. If within 2 x 24 hours from the date of the notice, the taxpayer has not paid the tax debt, the authorized official will issue a warrant for confiscation and the tax bailiff will carry out the confiscation of the taxpayer's property.

In the event that after the expiration of 14 days from the date of execution of the confiscation, the taxpayer has not also paid off the tax debt and tax collection costs, the authorized official will make an announcement of the auction of the seized goods to be auctioned. If within 14 days from the date of the auction announcement, the taxpayer has not paid off the tax debt and tax collection costs, the authorized official will conduct a auction of the seized goods of the taxpayer through the nation auction office.

 

The authorized officer may propose to restrict the taxpayer from leaving the country if the seized goods have been sold through auction or through other means. However, the authorized officer is also allowed to propose the restriction of the taxpayer from leaving the country if:

• the object of the seizure is not found
• the right to conduct tax collection will expire in less than two years
• the taxpayer will leave Indonesia for a period of time
• there are indications that the legal entity will be dissolved, divided, merged, transferred or changed to another form
• there are indications of bankruptcy or bankruptcy.

The authorized officer may also confiscate the taxpayer if the taxpayer has been restricted from leaving the country. PMK 61 Year 2023 regulates that confiscation may be taken against the taxpayer within a period of at least 30 days before the end of the restriction period or the end of the restriction extension period.

Based on the description above, it is known that restriction and confiscation are the last resort taken by the authorized apparatus if the taxpayer does not pay off the tax debt. This means that persuasive and administrative efforts are prioritized in the tax collection process. This is also in line with the Ultimum remedium principle which states that if a case can be pursued through other channels such as civil law or administrative law, then it must be pursued first before operationalizing criminal law.

 

Related Regulations

• Law No. 6 of 1983 on General Provisions and Tax Procedures as amended by Law No. 7 of 2021 on Harmonization of Tax Regulations
• Law No. 19 of 1997 on Tax Collection with a Writ of Compulsion as amended by Law No. 19 of 2020
• Minister of Finance Regulation Number 61 of 2023 concerning Procedures for Implementing Tax Collection of Accrued Tax Amounts