The ratification of Law Number 11 of 2020 concerning Job Creation has a considerable influence on rate changes in administrative sanctions and tax interest payments in Indonesia. The Government authorizes the Minister of Finance to determine the number of interest rates per month in Article 113. The rate changes are stipulated in the Decree of the Minister of Finance and will be determined every month.

Tax Policy Concept Statement 1 compiled by the American Institute of Certified Public Accountants (AICPA) in 2017 [1] states that a key challenge in proposed changes to the tax system is the reality that it is impossible to achieve all tax principles optimally at the same level. In the context of changing the rules regarding administrative sanctions rates and interest refunds, the principle of fairness may be achieved, however at the same time the rule will sacrifice the achievement of the simplicity principle. It is based on the axiom that justice is opposed to simplicity.

AICPA also argues that simplicity of tax rules is needed thus taxpayers can understand tax consequences of transactions made or planned comply with these rules properly. Complicated tax regulations increase the chances of error and non-compliance action. The more changes enacted, the more difficult it will be for taxpayers, tax practitioners and tax authorities to understand tax consequences of a transaction.

On the other hand, justice is the basic principle of an optimal tax system. One of the prevailing viewpoints is that taxes are considered fair when the taxpayer with the ability to pay more has a higher tax burden. Likewise, taxpayers who are more disobedient will receive greater sanctions. Of course, the tax rate will lead to varying progressive levels of the taxation system.

The current regulation eliminates rate simplicity, which was previously fixed at 2% per month for several administrative sanctions and interest refunds, to be based on the calculation of interest rates plus the uplift factor of each article regarding administrative sanctions and interest refunds divided by 12 months. With this change, all parties concerned must update their knowledge of the prevailing rate every month. On the other hand, the determination of new rate calculation is considered to be fairer because it uses a monthly reference interest rate that is more in line with the actual economic conditions that occur. The imposition of a different uplift factor in each article also assures that non-compliance actions with greater errors will be exposed to greater interest sanctions.

Changes in the rates of administrative sanctions and interest refunds is responses to irregularities in the previous tax regulations. For example, the previous General Provision of Taxation Law regulates the rate of administrative sanction in the form of interest in Article 8 paragraph (2) and Article 8 paragraph (2a) regarding the correction of Tax Return on one's awareness the tax sanction is 2% per month of tax amount. those who are underpaid, without a maximum period for the imposition of interest penalties. Meanwhile, the rate for administrative sanctions in the form of interest in Article 13 paragraph (2) concerning Notice of Tax Underpayment Assessment is set at 2% per month for the less tax amount stated in Notice of Tax Underpayment Assessment provided that the imposition of a maximum of 24 months.

The difference in the time frame for administering administrative sanctions in the two Articles indicates that the good faith of Taxpayer who took the initiative to correct Tax Return error was not an important point to be considered because this action got a higher chance of sanctions than if the taxpayer found an error in Notice of Tax Underpayment Assessment. This will make Taxpayers with similar conditions reluctant to report Tax Return errors with deliberately and will only wait for the Decree issued by the tax authorities to correct since they are prone to greater administrative sanctions.

This disparity is attempted to be corrected in Article 36 paragraph (2) of PP 74 of 2011 which explains that applications of administrative sanctions reductions against sanctions in Article 8 paragraph (2) and paragraph (2a) of General Provision of Taxation that are imposed exceeding 24 months can be given a reduction or abolition of administrative sanctions. Thus administrative sanction of 2% per month is imposed for a maximum period of 24 months. However, there is a hole in the regulation since it does not cover the sanctions given to Taxpayers who intentionally submit Tax Returns for the first time within more than 24 months from the due date. 

Article 27A of General Provision Of Taxation Law regarding interest compensation for tax overpayment from objection, appeal, or judicial review request is granted whether it is partially or completely of the is no less controversial. This is because the derivative regulation of the Article, namely PP 74 of 2011, clearly provides a limitation based on providing interest compensation that was not previously available. This is a violation of the principle of lex superior derograt legi imperior, which states that a law with a higher position removes the law that is under it or in other words, the law at lower level must comply with the existing provisions above it [2].

Determination of administrative sanctions in the form of interest and interest refunds is determined by calculating the reference interest rate plus the uplift factor divided by 12 months. The following is a breakdown of the uplift factors for each Article:

On December 29, 2020, the Head of the Fiscal Policy Agency has signed the Decree of the Minister of Finance KMK Number 57/KMK.10/2020 which regulates interest rates as the basis for calculating administrative sanctions in the form of interest and interest refunds for January 1, 2021 - January 31, 2021. Tax interest rate for January 2021 varies from 0.51% to 1.34% for administrative sanctions and 0.51% for interest refund.

 

Reference: 

[1] AICPA. 2017. Tax Policy Concept Statement 1.

[2] ICJR. 2015. Prinsip “lex superior derogat legi inferiori” harus digunakan, Seluruh Peraturan Daerah (Perda) Harus tunduk pada KUHP.