A taxpayer may be deemed to have committed a criminal tax offense in Indonesia if the taxpayer conducts certain activities set out in Articles 38, 39, and 39A of Law No. 6/1983 as last amended by Law No. 7/2021 on General Tax Provisions and Procedures ("GTP Law"). Please see our comments under Question 3 on the types of activities that will trigger tax criminal offenses in Indonesia.
If a taxpayer commits the activities set out in Article 38 for the first time, then the taxpayer will not be subject to criminal sanction but will be subject to administrative sanction. However, if the taxpayer commits the action set out in Article 39 and Article 39A of the GTP Law, the taxpayer will be subject to the criminal penalty as set out in Article 39 and Article 39A of the GTP Law, even if the action is conducted for the first time.
Tax criminal proceedings are triggered by certain acts stated in Articles 38, 39, and 39A of the GTP Law, e.g., if the taxpayer does not file a tax return, files a tax return with incorrect information, issues fake tax invoice that are discovered or proven during the audit of preliminary evidence. Criminal proceedings will not be triggered by the mere amount of tax adjustments.
See the answer in Question 2.
The criminal intention is the basis of the tax criminal offense while mere (unintentional) negligence happens without criminal intent. That said, both tax criminal offenses and unintentional negligence may still be resulting a detention or imprisonment, with different duration. We set out below the provisions under the GTP Law.
Unintentional negligence
Under Article 38 of the GTP Law, a person who unintentionally carries out the following:
- fails to submit a tax return; or
- submits inaccurate, incomplete, or false information/contents in the tax return
maybe subject to detention/imprisonment for up to one year and/or fines of up to twice the amount of tax due.
The unintentional negligence referred to in Article 38 of the GTP Law means unintentional, absent-minded, and careless conduct that leads to a potential loss of state income.
Intentional negligence
Under Article 39 of the GTP Law, a person who intentionally carries out the following:
- failure to register for a tax identification number (NPWP) or to report their business in order to be confirmed as a Taxable Entrepreneur;
- misuse or use without rights of its NPWP or Taxable Entrepreneur Confirmation;
- failure to submit the necessary tax return;
- submission of a false or incomplete tax return and/or information;
- refusal to be audited as set forth in Article 29;
- showing false or forged books, records, or other documents, as if they were authentic;
- failure to conduct bookkeeping or recording in Indonesia, or to show or lend books, records, or other documents;
- failure to maintain books, records, or other documents that become the base of the bookkeeping or recording, and other documents that are managed electronically or managed in an online application program in Indonesia as set forth in Article 28 paragraph (11); or
- failure to deposit tax that has been withheld or collected
may be subject to a criminal sanction in the form of detention/imprisonment for up to six years and/or a fine up to four times the tax due. The imprisonment can be doubled if someone commits another tax criminal offense within one year.
Under Article 39A of the GTP Law, a person who intentionally carries out the following:
- issues and/or uses any tax invoice, proof of tax collection, proof of withholding tax, and/or proof of tax payment not based on the actual transactions; or
- issues tax invoices but has not been confirmed as a Taxable Entrepreneur
may be subject to a criminal sanction in the form of detention/imprisonment for up to six years and/or a fine up to six times the amount of tax in the tax invoice, proof of withholding tax, and/or proof of tax payment. The imprisonment can be doubled if someone commits another tax criminal offense within one year.
Amendment of a tax return through self-disclosure and voluntary payment of additional tax due may reduce the risk of criminal proceedings.
The prosecutor can only prosecute the taxpayer if the result of the tax crime investigation process presents sufficient evidence that the tax criminal offense has truly taken place (ref. the GTP Law and Minister of Finance Regulation Number 177/PMK.03/2022 on Procedures for Audit of Preliminary Evidence of Criminal Offences in the Taxation Sector ("PMK 177/2022").
Article 40 of the GTP Law stipulates that any criminal tax offenses cannot be prosecuted more than 10 years after the tax is due, the end of the fiscal period, the end of part of the fiscal year, or the end of the relevant fiscal year. For example, for the tax assessment letter for the fiscal year 2007, the deadline for tax crime prosecution was in 2017.
The statute of limitation period starts after the tax is due, at the end of the fiscal period, at the end of part of the fiscal year, or at the end of the relevant fiscal year.
A person who unintentionally carries out a tax criminal activity set out in Article 38 of the GTP Law may be subject to detention/imprisonment for up to one year and/or fines of up to twice the amount of tax due.
A person who intentionally neglects their tax obligations may be subject to criminal sanction in the form of detention/imprisonment for up to six years and/or a fine of up to four times the tax due as set out in Article 39 of the GTP Law. The imprisonment can be doubled if someone commits another tax criminal offense within one year.
According to Article 44C of the GTP Law, the fine under Article 39 and Article 39A cannot be substituted with imprisonment and must be paid by the convicted party. If the convicted party does not pay the fine sentence any later than one month after the court's judgment has come into force and taken effect, the prosecutor may confiscate and auction the assets of the convicted party to pay the fine sentence. If, after the confiscation of assets has been carried out, the convicted party does not have sufficient assets to pay the fine sentence, the convicted can be punished with imprisonment, the length of which will not exceed the length of imprisonment awarded.
Yes, a compliance or risk mitigation program shall help taxpayers to mitigate potential tax crime issues, provided that this program is consistently and strictly applied.
Article 8 (1) of the GTP Law stipulates that the taxpayer may, at their own desire, correct a tax return that has been submitted by submitting a written statement, provided that the Director General of Tax has not conducted an audit. Typically, this is called a voluntary disclosure.
Under Article 8 (4) of the GTP Law, if the Director General of Tax has started the tax audit, the taxpayer still has a chance to disclose the incorrectness of their tax return, and the tax auditor will take into account the disclosure filed by the taxpayer, provided that the Director General of Tax has not submitted a notification of audit result.
Further, under Article 8 (3) of the GTP Law, if a preliminary evidence audit has been carried out, a taxpayer can still self-disclose the incorrectness of their tax return to the tax auditor, as long as the audit has not escalated into a full tax crime investigation that is conducted by the Indonesian police force.
Finally, Article 26 of PMK 177/2022 sets out that a taxpayer may disclose the incorrectness of actions under Article 20 of PMK 177/2022 after the date on which the report on an audit of preliminary evidence is issued (i.e., within the 12-month period of audit of preliminary evidence), provided that the investigation has not been notified to the public prosecutor.
Under Article 65 of Government Regulation No. 50/2022 as the implementing regulation of the GTP Law ("GR 50"), if a criminal case has been escalated to the court, the convicted party may still be allowed to settle the losses on the state revenue and/or the amount of tax along with administrative sanctions as referred to in Article 63 paragraphs (2) and (3) of GR 50. Article 63 paragraphs (2) and (3) stipulates the obligation for the convicted party to settle the amount of state loss as set out in Articles 38, 39, and 39A of the GTP Law plus certain administrative sanctions.
Under the GTP Law, the statute of limitation in Indonesia is five years after the end of the fiscal year or fiscal period. The statute limitation can be extended to 10 years in case of any criminal offense in the taxation sector.
No. According to Article 21 of PMK 177/2022, if at the time the tax audit is carried out there is an allegation of criminal acts in the field of taxation, the tax audit is suspended and followed up with the audit of preliminary evidence. Based on this, the Director General of Tax may not be able to assess and/or collect underpaid taxes while the relevant fiscal period or year is under audit for preliminary evidence.
However, the taxpayer may self-disclose and/or settle the tax liability. Please see our comments under Questions 11 and 15 on self-disclosure and settlement of tax under the audit of preliminary evidence and investigation process respectively.
Article 44B (1) of the GTP Law stipulates that the State Prosecutor can stop a tax crime prosecution based on a request from the Minister of Finance, for the purpose of state revenue. Based on this, it is possible for the taxpayer to make a settlement with the Minister of Finance who will then notify the state prosecutor to stop the tax crime investigation. In addition, GR 50 sets out that the convicted party may still be allowed to settle the losses on the state revenue and/or the amount of tax along with administrative sanctions. Please see our answer to Question 12 above.
According to Article 43 of the GTP Law, the criminal sanction that applies to a person will also be applicable to the taxpayer, taxpayer's representatives, taxpayer's proxy holders, taxpayer's employees, taxpayer's public accountant, taxpayer's tax consultant or other parties) who perform tax offenses (as stipulated under Articles 39 and 39A of the GTP Law) and also to a person who conducts the followings:
- Requests other parties to perform tax offenses.
- Participates in a tax offense
- Advises other parties to perform tax offenses
- Assists other parties to perform tax offenses.
Therefore, in theory, if a person performs the above activities, he/she may be considered aiding and abetting the tax offenses under the current tax rules.
In general, Indonesia adopts the legality principle, as set out in Article 1 paragraph (1) of the Indonesian Criminal Code ("KUHP") which states that no act shall be punished unless by virtue of a prior statutory criminal provision. The subjects of criminal law based on KUHP are not limited to Indonesian citizens but also foreigners who are currently located in the territory of the state of Indonesia.
Further, the GTP Law does not differentiate between residents and non-residents. Because the word used is "person", then the tax crime penalty can be imposed on non-resident taxpayers. If either a corporate entity or individuals are foreigners or not residents of Indonesia, this does not exclude the possibility of prosecution.
Yes, we have seen a case where an employee/director was prosecuted and imprisoned, and the tax due was charged to the company.
Yes, there is an increasing trend for criminal prosecution for tax offenses over the last five years. From the case, we are aware of the topics that include, among others, tax compliance, fictitious tax invoice, and also transfer pricing-related issues.