The President enacted Law No. 7 of 2021 dated October 29, 2021 on Harmonization of Taxation Regulations ("Law 7/2021"). Law 7/2021 is also an omnibus law like Law No. 11 of 2020 dated November 2, 2020 on Job Creation (the "Job Creation Law") as Law 7/2021 amends several laws relating to taxation.

Law 7/2021 amends, among others, Law No. 6 of 1983 dated December 31, 1983 on General Provisions and Procedures of Taxation as amended several times, lastly by the Job Creation Law (the "KUP Law"). This Newsflash discusses the changes of the KUP Law under Law 7/2021. Below are the salient points of changes to the KUP Law.

  • NIK as Tax Registration Number

Under Law 7/2021, an individual's Residence Master Number (or in Bahasa Indonesia Nomor Induk Kependudukan or "NIK" in short) will be the individual's tax registration number (or in Bahasa Indonesia Nomor Pokok Wajib Pajak or "NPWP"). We are uncertain whether existing NPWPs for individuals will be replaced by NIKs.

There will be a coordination between the Minister of Finance (the "MOF") and the Minister who is in charge of the residents' data to implement the use of NIKs as NPWPs. The implementation will be set out in a Government Regulation.

  • Certain Aspects of Tax Underpayment Determination Letters

Law 7/2021 now clarifies that a tax underpayment determination letter (an "SKPKB") is issued after an audit is done. Previously, it was unclear of an audit was required in certain matters.

  • Clarification on Interests Imposed on Certain Matters

Law 7/2021 now clarifies the applicable interest rates as the administrative sanction that the MOF may impose in the event a taxpayer fails to submit a tax return timely, any payable value added tax (the VAT), and non-compliance under Articles 28 or 29 of the KUP Law. In such event, the interests shall be the monthly interest rate determined by the MOF plus 20% and divided by 12. The maximum interest period is 24 months.

  • Failure to Pay Tax Installments is Subject to Tax Demand Letter

If a taxpayer fails to make the full payment of installments of tax as approved by the Tax Office then the Tax Office may issue a Tax Demand Letter (an "STP" in short in Bahasa Indonesia).

  • Collection Cooperation with Other Countries

The MOF may cooperate with any other country for the collection of taxes (both those of Indonesia or of the other country) on a reciprocity basis under a bilateral or multilateral agreement.

  • Reduction of Administrative Sanctions in Tax Objections

The amount of the administrative sanction that a taxpayer has to pay if a decision on objection (an "Objection Decision") rejects or partially grants the taxpayer's objection is reduced to 30% of the amount of the tax. If the taxpayer appeals to such Objection Decision, then the 30% fine is not payable.

  • Time Limit for Tax Office to Provide Basis of Objection Decisions

The Directorate General of Taxatin (the "DGT") now has 1 month to provide the basis of an Objection Decision if such information is requested by the relevant taxpayer.

  • Reduction of Administrative Sanctions in Tax Appeals

The amount of the administrative sanction that a taxpayer has to pay if a decision on a tax appeal (an "Appeal Decision") rejects or partially grants the taxpayer's appeal is reduced to 60% of the amount of the tax. If the taxpayer submits a judicial reconsideration (peninjauan kembali) in respect of such Appeal Decision, the enforcement of the Appeal Decision is not stayed or discontinued. In other words, the taxpayer is required to pay the amounts of the tax and the administrative sanction.

  • Administrative Sanctions in Judicial Reconsiderations

If under a judicial reconsideration decision (a "JR Decision") a taxpayer is required to pay an additional tax, such additional amount is subject to the administrative sanction of 60% of the amount of the tax less any amount of tax that the taxpayer has paid. The DGT shall issue an STP in respect of such administrative sanction within 2 years from the date of the JR Decision.

  • Mutual Agreement Procedures

The DGT is authorized to implement mutual agreement procedures (the "MAP") in order to resolve any issue in the implementation of a tax treaty.  The MAP may be initiated by a taxpayer, the DGT, or an authorized person of a partner country. After the MAP is completed, the DGT shall issue a decision regarding the mutual agreement.

  • Appointments of Parties to Withhold Taxes

The MOF may appoint a party (an "Appointed Party") to withhold, collect, pay, and/or report taxes.  An Appointed Party is a party that is directly involved in, or facilitates, transactions between other parties. An Appointed Party may be either a resident or non-resident of Indonesia. An Appointed Party is subject to the provisions of the KUP Law (including the provisions on the tax collection, legal actions, and sanctions).

In addition, if an Appointed Party is an electronic system organizer, any non-compliance by such Appointed Party may subject the Appointed Party to access discontinuation.

  • Clarification on Prosecution of Tax Crimes

It is now clarified that the trigger of prosecution of a tax crime is the delivery of a letter of investigation commencement (in Bahasa Indonesia in short an "SPDP") to the public prosecutor or a respondent of an SPDP by the Police.

  • Freezing of Assets by Tax Investigators

A tax investigator is now authorized to freeze assets of a suspect of a tax crime in accordance with applicable laws and regulations on freezing and seizure of assets.

  • Monetary Fines Not Replaceable with Incarceration

Any fines imposed on a taxpayer under Articles 39 and 39A of the KUP Law may not be replaced with incarceration (kurungan).

  • Hearings In Absentia

If a defendant of any tax crime has been properly summoned properly and the defendant is absent without a valid reason, the case will proceed and be decided in absentia.

  • Implementing Regulations

Matters described above will be governed in more detail in MOF Regulations.

We will circulate Newsflashes on other topics of Law 7/2021 in due course.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.