The tax evidence discovery procedure starts from the requirement for taxpayers to maintain sufficient bookkeeping and documentation for their tax returns. One particularly noteworthy element is transfer pricing documents, which must be compiled on an ex ante basis.
Following the submission of a tax return, the tax compliance monitoring process is often communicated to taxpayers through a letter from the Indonesian tax authority (ITA) requesting data and documents to help clarify its findings.
The ITA expects a full, explanatory response. If not, the authority asks the taxpayer to revise its tax return and subsequently pay any tax due. Although the ITA cannot force a taxpayer to perform such a revision, it could act on its findings to initiate a tax audit or even a tax crime audit for the taxpayer. Under a normal tax audit, the ITA would issue an administrative decision in the form of a tax assessment letter. If the taxpayer does not agree with the letter, administrative remedies are available.
A tax objection is the most common, which involves disputing the tax evidence and the application of tax laws, while the scope of other remedies relates more to administrative and procedural matters. If the taxpayer disagrees with an administrative remedies decision, it can appeal the tax objection decision or file a lawsuit challenging the administrative decision in the Tax Court.
Before discussing the rules concerning tax evidence, it is useful to understand the factors that could affect the tax dispute landscape in Indonesia.
High number of Indonesian tax assessments and taxpayer disagreements
Based on the ITA’s financial statements for 2024, the authority issued 285,228 underpaid tax assessment letters in that year alone, with underpayment amounts of IDR 72.18 trillion and $722.18 million (the US dollar amount applies to corporate or non-resident income taxpayers whose functional bookkeeping currency is US dollars, as authorised by the ITA). From those numbers, taxpayer disagreements reached IDR 43.17 trillion and $594.04 million. Furthermore, the ITA issued 14,997 tax objection decisions in 2024, which could be appealed at the Tax Court.
It is important to note that underpaid tax contested through an objection and appeal would be subject to a 30% penalty if the objection is denied and the taxpayer does not file an appeal, or a 60% penalty if the taxpayer appeals the denied objection and loses the case. These penalties are not applicable if the taxpayer pays the underpaid tax before filing an objection. If the taxpayer wins on appeal, the ITA will refund the payment of the underpaid tax, without interest.
Most taxpayers see the option to pay underpaid tax prior to objection as risk mitigation, while the above measure could also be seen as “scare tactics” according to Danny Septriadi, a tax expert in Indonesia, in an article in DDTC News.
High number of tax disputes – and the ITA’s win rate
Based on the Supreme Court of Indonesia’s Annual Report 2024, the tax dispute dossier statistics at the Tax Court were as follows:
Beginning case balance – 10,455;
New cases filed – 14,642;
Issued decisions – 17,053;
Ending balance – 8,044.
The Tax Court issued 13,977 decisions related to the ITA (82% of the total number of Tax Court decisions issued in 2024). The ITA achieved a 44.14% win rate, reaching 98.09% of its target of 45%.
The majority of tax disputes are factual disputes
On April 25 2025, Aim Nursalim Saleh, the ITA’s director of tax objection and appeal, said that around 65 to 70% of tax disputes are subject to cross-examination of evidence (sengketa uji bukti) and not legal disputes. In general, such disputes are the outcome of an indirect tax audit method set out in the tax audit procedures.
Darussalam, an Indonesian tax expert, made a forward-looking statement in a tax seminar in 2021 by forecasting that the future of tax disputes would no longer be about cross-examination of evidence but about tax interpretation.
In an ITA performance report, the authority argued that the following are among the causes of its losses at the Tax Court:
Tax Court judges make legal considerations prioritising substantial justice and overlooking other tax law functions; that is, to uphold compliance in tax administration and regulation; and
The suboptimal quality of tax audit findings.
In light of the above, the ITA believes that there is an urgent need to increase the quality of tax audit findings and to lower the authority’s loss rate at the Tax Court. These measures should, it argues, be followed by a revision of the tax audit procedures. The ITA added that feedback on the tax audit function of the authority is required.
Tax audit environment
To measure the performance of a tax audit, the ITA uses the following criteria:
The tax payable amount assessed during the year compared with the tax gap identified in the compliance monitoring process (15%);
Tax assessments agreed by the taxpayer (25%);
Tax audit completion (30%);
Timely tax audit completion (25%); and
Tax refund discrepancy (5%).
The ITA has identified several issues faced by tax auditors that hinder them from effectively achieving their key performance indicators. These include the limited number of tax auditors (5,504 at the end of 2024) and competency issues. Arguably, such issues cause a suboptimal quality of tax audit findings, which contributes to the ITA’s loss rate at the Tax Court.
As discussed earlier, the majority of tax disputes taken to appeal are factual disputes. These mostly relate to evidence based on worksheets produced using certain tax audit techniques. For example, for audit findings evidence based on a reconciliation between the sales amount in the income tax return and the sales amount in the VAT return, any differences would be deemed as unreported income or unreported VAT supply. This type of evidence is often contested by the taxpayer, and the Tax Court mostly allows an appeal, even if the taxpayer did not fully file counter-evidence as a rebuttal in the initial proceedings.
New tax audit procedures
On February 14 2025, the issuance of Minister of Finance Regulation No. 15 of 2025 introduced a revision of the tax audit procedures. Andri Puspo Heriyanto, the head of the Subdirectorate of Audit Techniques and Control at the ITA, has explained that the revision is intended to lower the ITA’s loss rate at the Tax Court.
There are several significant changes to the tax audit procedures, specifically regarding the process and timeline of a comprehensive tax audit, which are summarised as follows:
The maximum duration of a tax audit testing period has been reduced from six to five months, calculated from the taxpayer’s receipt of a tax audit instruction letter until the receipt of the result;
The audit duration can be extended by a maximum of four months in the case of a transfer pricing audit (previously 18 months);
A new process for discussing temporary audit findings has been introduced, which is to take place no later than one month before the end of the tax audit period;
A written rebuttal of a tax audit result must be submitted within five working days of receiving the audit result notification (previously seven working days, with a possible extension of three working days); and
The duration of the closing discussions and the tax audit reporting period is a maximum of one month (previously two months), calculated from the taxpayer’s receipt of the tax audit result notification until the date of the tax audit result report.
The ITA will issue a tax assessment letter after the audit is finished. If the taxpayer disagrees with the findings, it may file a tax objection to the ITA, which is an administrative remedy.
‘Old-school’ audit techniques
The tax audit techniques that may be performed by tax audit officers have not changed much from the first ITA rules on tax audit techniques as set forth by Director General of Taxes Decision No. KEP-01/PJ.7/1990, dated November 15 1990, regarding tax audit guidelines. Currently, the applicable tax audit guidelines are based on the Director General of Taxes Circular Letter No. SE-65/PJ/2013, dated December 31 2013.
The most famous tax audit technique is reconciliation, which is a mandatory technique applied to amounts that hypothetically could be reconciled, such as the corporate income tax base versus the VAT base.
With regard to the outcome of the reconciliation technique, in most cases, the differences or unexplained reconciliation items would be used by the tax audit officer as tax adjustments and deemed additional taxable income, for example. However, such an arbitrary audit result is contrary to the standards and guidelines on tax audits set by the ITA.
Reasonably competent evidence
The tax audit standard under Minister of Finance Regulation No. 17 of 2013 requires that a tax audit finding be based on reasonably competent evidence and the tax laws. This standard was revised by Minister of Finance Regulation No. 15 of 2025, which now requires that a tax audit finding be based on strong and relevant evidence and the tax laws. Taxpayers should remain cautious as to what the effect may be.
Furthermore, on the use of reconciliation, the above-mentioned audit guidelines specifically outline that if there is a difference from the computation using the reconciliation technique, the difference cannot be automatically concluded as additional taxable income. The tax audit guidelines require evidence to be obtained regarding the difference before reaching a conclusion on the final audit result. Several Tax Court and Supreme Court decisions have concluded that the difference resulting from the reconciliation technique would not qualify as tax evidence.
Shifting the burden of proof
Most of the time, the tax audit officer shifts the burden of proof to the taxpayer. The officer would request evidence from the taxpayer to prove that the difference is not additional taxable income. The difference is often not a straightforward list of findings but an amount derived from a hypothetical approach.
The burden of proof is based on Article 12, paragraph 3 of the General Rules of Taxation Law, and the ITA can issue an assessment if it finds evidence that the tax return is incorrect. That would not be the case if:
The taxpayer does not maintain sufficient bookkeeping (if required) or records; or
The taxpayer does not comply with a data and document request during a tax audit.
In such a case, the burden of proof lies with the taxpayer.
Supreme Court letter concerning the rules on tax evidence
Prior to the revision of the tax audit procedures, the Supreme Court issued Circular Letter No. 2 of 2024, dated December 17 2024, addressed to the head of the Court of Appeal and the head of the Court of the First Level (including the Tax Court).
The letter provides several legal norms, including one related to the rules on tax evidence. It sets forth that if tax evidence that is in the possession of the taxpayer has been requested specifically and within a proper timeline by the ITA but was not admitted during a tax audit and/or objection, it is not admissible for tax dispute resolution at the Tax Court and/or the Supreme Court.
A game-changer for the existing rules on tax evidence
The rules on tax evidence mentioned in the Supreme Court letter emphasise the admissibility criteria for tax evidence, which are also regulated by the Tax Court Law. Pursuant to Article 76 of that law, the rules on tax evidence in the Tax Court are:
Applied based on material actuality in accordance with the principle in the tax laws;
That the role of the judge is to determine what is to be proven, the burden of proof, fair judgment, and the validity of evidence from facts disclosed in court, not limited to those argued by the parties; and
The taxpayer and the ITA can bring forward new matters that were not discussed previously in an appeal letter, a position letter, or a rebuttal letter.
It remains to be seen whether the Supreme Court letter constitutes the official interpretation of the Tax Court Law’s admissibility requirements or is contrary to the Tax Court Law, based on the hierarchy of laws.
Outlook for tax audits in Indonesia
Taxpayers and tax professionals should be on high alert in facing the shorter timeline for tax audits. An increase in audit data requests and audit techniques should be expected.
Tax audit officers may try to shift the burden of proof and rely on formal procedures when requesting evidence. Conservatively, audit readiness is to be prioritised, which means that the taxpayer should prepare a defence file using as many tax audit techniques as possible, and anticipate an increase in work by expanding the tax team and/or investing in infrastructure. Failing that, the taxpayer should at least be able to document the availability of the evidence requested, and whether, at that time, such evidence is in its possession.
Preparing a strong audit defence and response team, communicating strategically internally, maintaining a tax data room structured based on the type of tax data, and developing a robust infrastructure to process huge amounts of tax data and tax audit techniques seamlessly would ensure the taxpayer’s position is fully defended.
Finally, it is important to note that a taxpayer is sometimes compliant but has difficulties in showing evidence that demonstrates it.
