As tax revenue is the biggest contributors to Indonesian state revenue, the tax authority has been actively carrying out examinations and investigations to combat tax evasion. According to the 2022 Annual Report of the Ministry of Finance of the Republic of Indonesia (“2022 MOF Report”), the Indonesian Directorate General of Taxes (“DGT”) has completed several investigation cases of tax crimes which inflict a financial loss in the amount of IDR1.01 trillion to the state, with a total of 93 cases of taxation crime. Since the investigation may be preceded by preliminary evidence examinations, the DGT has issued 617 preliminary evidence examination orders (233 cases of which were being proposed for further investigation) in 2022. Tax crime itself is broadly defined as acts that are subject to criminal sanctions as stipulated in Law No. 6 of 1983 on the General Provisions and Tax Procedures as amended from time to time (“Law No. 6/1983”), Law No. 12 of 1985 on Land and Building Tax as amended from time to time, Law No. 10 of 2020 on Stamp Duty, Law No. 19 of 1997 on Tax Collection by Distress Warrant as amended from time to time (“Law No. 19/1997”), and Law No. 9 of 2017 on Access to Financial Information for Tax Purposes (“Law No. 9/2017”).
The abovementioned data indirectly indicates that preliminary evidence examination is one of the key steps to mitigate the state’s financial loss in the field of taxation. To smoothen the process of preliminary evidence examination, on 19 January 2024, the DGT issued a Circular Letter of the Directorate General of Taxes No. SE-1/PJ/2024 (“SE No. 1/2024”) as an implementation to the enactment of Minister of Finance of the Republic of Indonesia Regulation No. 177/PMK.03/2022 concerning Procedures for Examining Preliminary Evidence of Criminal Acts in the Tax Sector which has been effective starting from 3 February 2023 (“PMK No. 177/2022”). PMK No. 177/2022 stipulates several updates which are reflected in SE No. 1/2024 including among other provisions related to (a) the time limit for submitting the preliminary evidence examination report which must be submitted no later than 1 (one) month before the examination period ends and (b) limitation on the extension period for the preliminary evidence examination into 12 (twelve) months. In general, SE No. 1/2024 establishes internal technical guidelines for DGT in conducting examinations of evidence of the initiation of tax crimes.
The Period of Preliminary Evidence Examination
The examination period of preliminary evidence of tax crimes is 12 (twelve) months and can be extended for another 12 (twelve) months – meaning that the total permitted period is 24 (twenty-four) months or two years. The timeline will be starting from (i) the date of the notification letter for the preliminary evidence examination, in the case of an open audit or (ii) the date of the preliminary evidence examination reprimand letter is received by the examiner, for a closed examination. Essentially, the extension for the time period of preliminary evidence examination may only be carried out for examinations that fulfil either one of these criteria (a) covers more than 1 (one) alleged criminal action; (b) covers more than 1 (one) fiscal year; and/or (c) the criminal incident involves more than 1 (one) law enforcement unit. The preliminary evidence inspection will end after the preliminary evidence examination report is issued.
Methods of Examination
The preliminary evidence examination process may be conducted openly or secretively (closed). The open examination for preliminary evidence may only be carried out under several conditions, including (a) there is potential for recovery of the losses in state income as referred to in Article 38 or Article 39 of the Law No. 6/1983; (b) the taxpayer is currently being audited; or (c) the alleged criminal act is regulated in (i) Article 41A or Article 41C of the Law No. 6/1983, (ii) Article 41A Law No. 19/1997; or (ii) Law No. 9/2017.
Outline of Preliminary Evidence Examination
Initially, preliminary evidence examinations can be carried out based on proposals or reports, complaints, information, or data from intelligence, supervisory actions, inspections, investigation development, or preliminary evidence examination development. However, if the relevant taxpayer is being audited and has received a notification letter regarding the audit results, the review team may reject the audit proposal.
The stage will begin with a review of the formal and material aspects of the proposed examination, in which the review of the material aspects is carried out to ascertain suspected criminal acts in the field of taxation or preliminary evidence of suspected criminal acts in the taxation field. The period for the review process can last to a maximum of 2 (two) months after the proposal is received if the proposal originates from intelligence activities, supervision, development of preliminary evidence or development of investigations. However, in the case of a proposal to examine preliminary evidence originating from an audit activity, the review period is a maximum of 1 (one) month after the proposal is received. During the review process, the review team may involve the proposing party, preliminary evidence examiners, or employees who handle criminal acts in the tax sector. The results of the review will be stated in the review report, which will contain recommendations for the examination.
If the recommendations of the review constitute to proceed with examination, the process will be followed by the preliminary evidence examination stage. Prior to the inspection, a preliminary evidence examination order must be issued no later than 1 (one) month after the preliminary evidence examination proposal is approved. Afterwards, the audit team will prepare for the preliminary evidence examination which includes planning the preliminary evidence examination by studying the basic documents for the preliminary evidence examination, searching for and studying data and/or information related to the party to be examined, holding discussions with related parties, making a work plan for the evidence examination, initiation coordination with the DGT and/or functional tax auditors, observations and requests for information.
Subsequently, the examiner will continue the preliminary evidence examination process with the following stages:
- Notify the investigated party directly regarding the preliminary evidence examination no later than 1 (one) month after the preliminary evidence examination order is issued, the examination team is obliged to convey this to the investigated party prior to notifying the head of the relevant tax office;
- During the notification, the examiner and the investigated party shall sign an integrity pact and a statement of approval;
- Throughout the audit, the examiner may borrow files from work units within the DGT, tax data and document processing units, or other work units within the DGT. The inspection process may also involve digital forensic activities carried out by DGT employees;
- The audit team will invite the investigated party to clarify the alleged criminal acts and potential losses to state revenues committed at the DGT office or other places deemed appropriate and reasonable. The results of the clarification will be stated in the minutes of clarification;
- Finally, the examiner will submit the results of the preliminary evidence examination which must be published no later than 1 (one) month after the summons for clarification is issued. The results of the preliminary evidence examination can be followed up with an investigation or termination of the preliminary evidence examination.
Update on Constitutional Court Decision concerning Initial Investigation
On 13 February 2024, the Constitutional Court, under Decision Number 83/PUU-XXI/2023 (“MK Decision”), declared that Article 43A paragraphs (1), (4), Article 2 number 13 of Law No. 7 of 2021 on Harmonization of Tax Regulations (“HPP Law”) were unconstitutional and therefore, should be amended to the extent that (a) there are no coercive measures used during preliminary evidence examination and (b) the process must honor the taxpayer’s human rights, Further, the MK Decision also emphasized that more technical regulations, such as Minister of Finance Regulation, cannot grant authority in investigations that contain the nature of coercion or coercive measures, which contains legal norms of criminal procedures – which should be regulated in the law.
Conclusion
Generally, we view that the provisions under SE No. 1/2024 do not significantly alter the provisions on preliminary evidence examination for tax crimes that were previously in effect. Nevertheless, the issuance of SE No. 1/2024 provides legal certainty for the implementation of preliminary evidence examination for tax crime(s) as a response to the enactment of PMK No. 177/2022 as it provides several adjustments. However, with the issuance of the MK Decision, it is still unclear whether new regulations will be issued in the future to further amend PMK 177/2022 and SE No. 1/2024. However. Tax authority shall observer the effect of MK Decision to HPP Law.
For further information, please contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
1 Laporan Tahunan Kementerian Keuangan Republik Indonesia tahun 2022, pg. 225.
2 Ibid., pg. 224.
3 UU No. 6 Tahun 1983 tentang Ketentuan Umum dan Tata Cara Perpajakan
4 Surat Edaran Direktur Jenderal Pajak No. SE-1/PJ/2024 tentang Petunjuk Teknis Pemeriksaan Bukti Permulaan Tindak Pidana di Bidang Perpajakan
