How to resolve tax disputes in Indonesia through courts and legislation
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How to resolve tax disputes in Indonesia through courts and legislation

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These advance rulings bind the taxpayer and the tax authorities

Sri Wahyuni Sujono and Agus Windu Atmojo of SF Consulting/Crowe Indonesia consider how the hierarchy of legislation in Indonesia relates to the tax court’s role of settling controversies and applying suitable provisions.

The Indonesian tax system has a hierarchy of regulations, which are expected to fairly standardise taxation across Indonesia. However in practice, a tax authority can still fail to exercise such systems optimally and this could potentially lead to tax controversy raised by the claimant. Where a tax dispute arises due to such controversy, as part of the dispute remedy system, a tax court can offer to provide fair dispute resolution to an Indonesia taxpayer.

Controversy in tax practices

In accordance with the system of taxation in Indonesia, the fulfilment of tax obligations is done through self-assessment, whereby the taxpayer calculates and reports the tax payable by themselves. In certain cases, there is an official assessment mechanism whereby the tax authority/Directorate General of Tax (DGT) actively determines the tax obligations of the taxpayer through the issuance of a tax collection notice (STP) or a tax assessment notice (SKP).

The constitution protects the rights of the taxpayers under Article 23A of the 1945 Constitution (UUD 1945), which mentions: “Taxes and other compulsory levies required for the needs of the states are to be regulated by law”.

One of the causes of tax disputes is that the tax authority excessively applies its executive power, which clashes with the intention of the tax regulation and/or tax hierarchy. In other words, the tax authority often carries out its duties merely based on the power of the executive institution and tends to ignore the tax regulations that should apply as the mandatory basis in the implementation of taxation. This phenomena gives rise to tax controversy in Indonesia.

In these two following summaries of real tax court decisions, it can be seen how tax courts - as one of the players in the tax disputes system - can provide a remedy for a taxpayer when the tax authority, who excessively applies its executive power, causes such tax controversy.

Example one: Dispute on DGT internal letter

Based on internal letters of the DGT, it shows that a tax office shall issue a STP for VAT for late issuance of tax invoices in the event that the taxpayer is late in filing its periodic VAT return. The DGT has performed an interpretation of the legal basis of Article 14, paragraph (1), letter (d) of the VAT law, which reads:

(1) The Director General of Tax may issue a tax collection notice if: d. an entrepreneur has been confirmed as a taxable entrepreneur, but does not produce a tax invoice, or produces a tax invoice, but not on time;

Based on this fact, taxpayers disagree with the STP that is issued by the DGT, on the ground that the legal basis used by the DGT in the form of an internal letter is incorrect, as it is not in accordance with the VAT law.

For the STP, with which it disagrees, the taxpayer pursues the effort to resolve the dispute by submitting a letter of request for reduction or cancellation of the incorrect tax collection notice to the DGT, using the legal basis of Article 36, paragraph (1), letter (c) of the General Procedures and Provisions for Taxation (KUP law). The result of this dispute resolution efforts is that the DGT rejects the request submitted by the taxpayer. The taxpayer then pursues a remedy for further resolution of the dispute by filing a lawsuit against the DGT’s decision to the tax court.

The result from the filing of the lawsuit is a verdict from the panel of judges, which grants entirely the taxpayer’s lawsuit because the legal basis of the interpretation used by the tax office is in the form of an internal letter, which is not in accordance with the VAT law.

Example two: Dispute over timeframe

Due to the reason that it disagrees with a tax assessment notice that is issued, a taxpayer submits a request for reduction or cancellation of an incorrect tax assessment notice. In the resolution process, the DGT then issues a letter concerning the notification of the result of an investigation in response to the request letter submitted by the taxpayer.

In the letter, it is stated that the taxpayer is given the opportunity to respond in writing, together with data, evidence, and supporting documents, within no longer than 10 days from the date of the letter and to attend a closing conference. It is not clearly stated in the letter whether this means 10 working days or 10 calendar days. Nevertheless, the letter conveyed by the DGT mentions that the period of 10 days should be referred to as 10 calendar days and not 10 working days.

This then becomes an issue because, based on the provisions, the 10 days referred to, should in fact be 10 working days. The following is an excerpt from the provision concerned based on Director General of Tax Regulation No. 1 of 2017, which is a provision that stipulates the procedures for resolution of requests for reduction or cancellation of incorrect tax assessment notices:

“A taxpayer may submit a written response to a letter of notification of result of examination of reduction or cancellation of incorrect tax assessment as mentioned in paragraph (2) within a period of 10 working days from the date of the letter of notification of result of examination of reduction or cancellation of incorrect tax assessment.”

In the provision, on the procedure for resolution, it clearly states that the period is 10 working days. The taxpayer therefore has a strong basis to declare an objection to the time period conveyed by the DGT as stated in the DGT’s letter.

The legal remedy pursued by the taxpayer is a lawsuit against the letter of notification of result of examination of reduction or cancellation of incorrect tax assessment, filed to the tax court. Specifically, the lawsuit challenges that the DGT did not fulfil the formal provisions in the procedure for resolution of a request for reduction or cancellation of an incorrect tax assessment notice. The result of the lawsuit is a verdict of the panel of judges that grants in full the taxpayer’s lawsuit.

Tax hierarchy and the legal system

Specifically for taxation, Article 7, paragraph (4) of Law 12 of 2011 stipulates another kind of hierarchy of laws and regulations, and one of them is the tax law. By state administration, the authority in Indonesia who is responsible for tax, is the Minister of Finance. Furthermore, specifically for taxation, the Minister of Finance is helped by the Director General of Taxation as a government structure below the Minister of Finance. The hierarchy of tax laws and regulations is as follow:

  1. Constitution of the Republic of Indonesia, year 1945 (UUD 1945);

  2. Tax law;

  3. Government regulation in lieu of law;

  4. Government regulation;

  5. Minister of Finance regulation;

  6. Director General of Tax regulation; and

  7. Circular letter of Director General of Tax.

Within this hierarchy, laws and regulations that are lower in status may not conflict with laws and regulations of a higher level. This also implies that the legal force in the laws and regulations will refer to this hierarchy.

The creation of laws and regulations shall basically start with planning, followed by preparation, technique of arrangement, formulation, discussion, ratification, enactment, and publication. In addition, in the planning of legislation, it as also necessary to harmonise and adjust with other laws and regulations, both higher and lower than the draft law, so that it can be arranged systematically and prevent an overlap.

Remedies for resolving tax disputes

In the event that the taxpayer disagrees with the tax obligation stipulated by the tax authority in such notices, the KUP law provides several alternative forms of resolution that the taxpayer may pursue objection, a request for reduction of SKP or penalty, an appeal, a lawsuit, and/or a judicial review.

Resolution of disputes through objection and reduction of penalties is under the authority of the Directorate General of Tax, which is also the institution that has the authority for tax audits. Meanwhile, resolution of disputes through the remedies of appeal, lawsuits, and judicial review is through the courts, under the third-party authority of the judiciary.

Court verdicts on resolving tax disputes

The phenomenon of these two channels of dispute resolution can be categorised as a difference in the character of the decisions on dispute resolution by two different institutions: by the executive and by the judiciary. Resolution of tax disputes through the DGT, which is part of the executive branch, tends not to be neutral. This is understandable, since the disputes occur between taxpayers and the DGT itself, which is also the organ of the executive branch that resolves the disputes.

Meanwhile, in the resolution of disputes through the courts, which are in the judicial branch, the decisions that are produced tend to be fairer and more objective. This is a consequence of the status of the courts as a judicial institution. With their position as the judicial branch, the courts are better able to take a more objective position in resolving disputes between taxpayers and the DGT as part of the executive branch.

This role of the courts in the resolution of disputes is in line with the settled jurisprudence of the Supreme Court of the Republic of Indonesia, Verdict MA RI No. 5K/TUN/1992 between D. binti A et al. and the Head of the National Land Agency (BPN), which confirms that a decision of an official or agency of state administration may not conflict with or violate the existing legal order.

Through this jurisprudence, it is shown that not only within the realm of taxation but generally in Indonesia, a decision that is made by an agency or official of the state administration (TUN), which is an executive institution, shall not be allowed if it conflicts with the existing legal order.


The fact that the tax authority often carries out its duty merely based on the power of the executive creates an absolute need for certain efforts for dispute resolution that taxpayers can rely on. Without such remedies, the taxpayers’ fulfilment of their tax obligations will not be able to proceed optimally, because of the lack of legal certainty in the implementation of taxation.

The two examples of court verdicts on lawsuits that have been described above show that efforts for legal resolution of disputes through the courts in Indonesia are a more reliable remedy for taxpayers in seeking legal certainty. Thus, for both taxpayers and prospective taxpayers, that are considering investing in Indonesia, this can be a positive point relating to the aspects of taxation in Indonesia. Legal certainty in implementation of tax obligations actually exists in Indonesia, as the courts still respect and comply with the prevailing hierarchy of laws and regulations in ruling on tax disputes.

Click here to read the entire 2020 Indonesia Special Focus guide

Sri Wahyuni Sujono


Managing partner

SF Consulting/Crowe Indonesia

T: +62 21 57944548


Sri Wahyuni Sujono is the managing partner of SF Consulting/Crowe Indonesia. Over her career, she has had more than 30 years of experience as a tax lawyer with firms including Arthur Andersen and EY Indonesia.

As the coordinator of the financial services group in Arthur Andersen, Sri has been involved in the restructuring and M&A deals of major banks and companies, where she has dealt almost exclusively with multinational corporations.

Sri’s experience has led to her expertise in areas such as tax litigation, transfer pricing, tax planning and tax restructuring. She is experienced in serving a large variety of clients, both national and multinational.

Sri has been ranked as a leader in the woman in tax, tax controversy and indirect tax guides by ITR.

Agus Windu Atmojo


Senior manager

SF Consulting/Crowe Indonesia

T: +62 57944548


Agus Windu Atmojo is a senior tax manager with SF Consulting/Crowe Indonesia. He has more than 20 years of experience in taxation, and previously worked for 12 years as a state official.

Agus Windu has served major multinational and national companies for various tax advisory services. With experience, he has grown accustomed to dealing with different types of clients in many areas such as tax planning and restructuring, transfer pricing, tax litigation and tax compliance.

Agus Windu attained his bachelor’s degree in management from the University of Indonesia.

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