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MANAGEMENT

Process / Art / Science


How to running the people, resources and infrastructure to
achieve an objective
Functions of management:
Planning
Organizing
Actuating
Controlling
TAX
Compulsory contribution to the state
Without direct benefit
Legally enforceable
For wealth of nations
Functions of tax:
Budgeter
Regulerend
TAX PROBLEM
Tax can be a burden for taxpayer
Problems arise cause:
Not understand the tax
Disbelief to tax institution
Unwillingness
Culture and mindset
TAX CONSULTANT
Tax Consultant can relieved a burden of taxpayer by
managing a tax
Taxpayer CAN MANAGE THE TAX BY HIM/HER/ITSELF
To avoid this kinds of problem, tax management must be
understandable
COURSE DESCRIPTION
This course will help student to understand the tax
management process in the company
This course also will help student to understand the
methods that taxpayer do to minimize the tax payable
WHY TAX MANAGEMENT NEEDED?
Human Being Nature
Human never want his/her wealth reduced
If one may not pay, why I have to pay?
If one may pay smaller, why I have to pay bigger?
The effort of taxpayer to achieve optimal fulfillments of tax
obligations by:
Planning : Set a goals and actions for reducing tax

Organizing : Set an infrastructure and resource to

implement a plan
Actuating : Lead and motivate all actions necessary
Controlling : Review the actions and take the
feedback
Tax management must be:
Economy
Efficient
Effective
FACTORS AFFECTING TAX MANAGEMENT
Difficulties of Tax Laws
Amount of Tax Payable
Negotiation Cost
Detection Risk
Tax Sanction / Penalties
Taxpayer and Tax Office Morale
EXPLANATION
Difficulties of tax laws
-Tax laws is sometimes difficult to apply contain grey area, or
sometimes not easy to understand, or have too many differences with
accounting standard
-Taxpayer will opt to save their time to comply to this tax laws
-Consideration : HIGH COMPLIANCE COST

Amount of tax payable


-The bigger the tax payable, the higher the effort of taxpayer to reduce it
-Consideration : How to manage the progressive income tax? >> IT IS A GIVEN FACTOR
-Negotiation Cost
To comply to tax laws, taxpayer often negotiate with tax office or even tax consultant
-If the negotation effect is higher, taxpayer will do lots of negotiation

Detection risk
-All taxpayer has different detection risk
-The lower the detection risk, the higher the tax evasion (tax fraud)
-Keyword : MONITORING
-Tax sanction / penalty
-The lower the sanction, the taxpayer will increase their negative
attitude toward tax

Taxpayer and tax office etiquette / morale


-Tax in Indonesia is still perceived as a burden
-Indonesian people never feel the effect of tax, in the economic
development
-Indonesian people still struggle to meet their basic needs >> how
they can paid tax?
-Tax is not an important political instrument in Indonesia

DAILY ACTIVITIES OF TAX MANAGEMENT


TAX COMPLIANCE, TAX PLANNING, TAX LITIGATION, TAX RESEARCH,
ACTIVITIES

TAX COMPLIANCES
Preparing tax administration / Tax system, Tax bookkeeping, Tax
withholding, Tax deposit, Tax reporting, Preparing data for tax audit

ACTIVITIES TAX PLANNING


(1)Strategy to arrange companys accounting and finance system, to
minimize tax payable without violating tax laws, (2)It is a major part of
tax management process

ACTIVITIES TAX LITIGATIONS


(1)Effort to settle any conflict in tax (usually with tax office =
SENGKETA PAJAK) (2)Tax conflict usually arise because there is a
difference in the intepretation between taxpayer and tax office
regarding a tax laws (3)Objection, appeal, correction is part of tax
litigation

ACTIVITIES TAX RESEARCH


1) Process to solve a problem, find answer or give recommendation to
tax problem in company, 2)Determine the relevant tax facts, 3)Identify
issue related to the facts, 4)Evaluate data and or information,
5)Develop and construct summary and conclusion, 6)Communicate the
recommendation

TAX PLANNING STEPS


When starting the business, When conducting the business, When
closing the business
COMMON TAX PLANNING STRATEGIES
Tax Savings, Tax Avodiance , Delay of Tax Payment, Optimizing Tax
Credit, Avoiding Tax Audit, Avoding Tax Laws Violation
INCOME QUADRANT
TAX PLANNING: KNOWING TAXPAYER RIGHTS AND OBLIGATIONS

TAX PAYER RIGHTS AND OBLIGATIONS


-Remember the core of tax problems (INTI PERSOALAN PAJAK)
-Who is tax payer? Tax subject + Tax object
-Rights / Obligations
-How much tax should be paid Tax object + Tax base x Tax tariff
-Different tax base calculations
-Different tariff for different tax

Taxpayer obligations
-Obligations is to comply to law >> Tax compliance cost >> burden for
tax payer
-If taxpayer can have an option to not comply >> reduce compliance
cost

Taxpayer Rights
-Rights is a priviledge >> mostly an advantage
-Unused rights >> opportunity cost / sunk cost
-Tax rights must be utilized to maximize benefit for tax payer.
EXAMPLE OF TAX MANAGEMENT OF RIGHTS AND OBLIGATIONS
-Taxpayer Identity Number / Taxable -Entepreneur
-Bookkeeping / Recording
-Tax Auditing
-Objection, Appeal, Correction, and Rights

NPWP/NPPKP
1. Obtaining NPWP/NPPKP
Consider the time limit for obtaining NPWP/NPPKP, e.g (1) Individual
Taxpayer who manage the business can have NPWP 1 month after
conduct business (2) Taxable entrepreneur which has income < 4,8
billion per year can opt not to become TE/PKP
Consider any elimination of NPWP/NPPKP e.g (1) Married women
taxpayer can choose to eliminate her NPWP and use her husband
NPWP (2) If any TE/PKP cant meet minimum requirement to
become TE, it can abolish the NPPKP
2. Mechanism
Watch over the document requirement for individual taxpayer,
only need FC Identity card, but for Corporate is must also
completed with domicile letter and also establishment act
Mechanism choose the easiest and simplest one come directly to
tax office or use E-Registration think cost and also time

BOOKKEEPING / RECORDING
1. Bookkeeping
Same like accounting, but useing tax laws as a standard
Oblige for (1) Corporate Taxpayer (2) Individual taxpayer who
conduct business and or professional service
2. Planning
Individual taxpayer who conduct business or professional service,
that has (1) Income less than 4,8 billion or (2) Using deemed profit
(NORMA)
Bookkeeping is costly need to maintain accounting system,
consistent, information risk, need to be audited, etc.
3. Recording
Taxpayer that exempt from bookkeeping oblige to do recording
record only gross income (taxable, non taxable, final taxable)
Benefit less costly, simple
4. Choosing bookkeeping / recording
Calculate tax and compare which one will provide the lowest amount
NOTE:
Individual
- Omset < 4,8 M Bookkeeping
- Omset > 4,8 M Bookkeeping / recording
Badan Bookkeeping

Example
Mr T is a businessman that has an income Rp. 2 billion per year and
expense Rp. 1 billion per year. If using deemed profit, it will be
charged at 25% rate. How can Mr T use bookkeeping / recording
Since Mr T able to conduct bookkeeping / recording, than Mr T can
choose what method that will be applied
Take an analysis on its net income
Answer
If using bookkeeping, net income = revenue expense
2 billion 1 billion = 1 billion

If using recording, net income = revenue x deemed profit rate


2 billion x 25% = 500 million

Tax will be lowest if we are using deemed profit

TAX AUDITING
Manage Tax audit
Tax payer and tax auditee has different rights and obligations
There are some criteria for taxpayer to be audited (have higher
chances) this must be avoided If already being audited, apply
some tax audit strategy
Look at slides / course in TAX AUDIT

CORRECTION, OBJECTION, REVIEW, AND APPEAL


1. Correction
If taxpayer, before being audited realize there is a mistake in
calculating tax payable
Benefit avoid higher sanction, minimze the chances for being
audited
2. Objection
If taxpayer is not satisfied with Notice of Tax Assesment (SKP)
Benefit to do an objection (1) Tax payable is deffered until the
relase of result of objections manage good cash flows
3. Review
Conducted if taxpayer think that collection, audit, or any tax
procedure conduct by tax office is not according to law
Benefit can ask for annulment (pembatalan), deletion
(penghapusan), or re-assesment (penetapan kembali)
4. Appeal
If taxpayer still not satisfied with result of objection apply to tax
court
Benefit if as a result of objection, there is underpayment, the
amount is deffered good for cash flows
MANAGE CORRECTION, OBJECTION, REVIEW, AND APPEAL
Frequency, correction can be done without limit, but others only
once
Opportunity for acceptance usually high if there are lots of
supporting evidence
Think cost against benefit Benefit > Cost (e.g compare total tax
overpayment with cost to litigate, hiring consultant, travel cost,
OPE, etc)

OVERVIEW INCOME TAX ARTICLE 21


Tax withhold to income received by Individual taxpayer, as a result of
activity (Employment, Service, and other activity)
Individual taxpayer
Permanent employee
Non permanent employee
Non employee continuing income
Non employee non continuing income
Other individual from any activity

Income tax article 21 obligations


1. Taxpayer obligations
Having NPWP not have, 20% higher tariff
Declaration of dependence for exemption calculations
Asking for prove of withhold (BUKTI POTONG)
2. Tax withholder obligations
Calculate and withhold income tax article 21 correctly and timely
Make a prove of withhold Deposit inc tax art 21 withhold
Report withhold and deposit by filling Income Tax Return (SPT MASA
PPh 21)
Tax planning strategies for income tax article 21
1. Taxability / deductibility
2. Concept income tax article 21
3. Policy reconciliation
4. Transaction selection

1 TAXABILITY / DEDUCTIBILITY CONCEPT


Revenue / taxable objects Expense
Taxable Deductible
Non taxable ( natura ) ( bonus ) Non-decutible ( tidak di akui
secara pajak / laba fiskal )
TAXABLE DEDUCTIBLE CONCEPT ANALYSIS
Choose the expense that:
- Maximize the expense deductibe expense
- Maximize employee take home pay
- non taxable object
Company and employee will all be happy if number 1 exist
Company and employee will all be unhappy if number 2 exist
SOME EXAMPLE of number 1
- Company payment for pension and oldage allowances
(Tunjangan Hari Tua dan Iuran Pensiun)
- Given of benefits in kind / facility for employee in remote area
usually benefits in kind is non deductible expense
- Scholarship for employee, as long as no related parties
- Given a facility for business and also personal use : Car,
handphone, house, etc. depreciation expense can be deducted
50%, while for employee is non taxable object
- Food and drink expense for employee, is a benefit in kind, but is
deductible given in workplace for ALL employee
- Pick-up and drop off cost for employee (antar jemput)
SOME EXAMPLE FOR number 2
- Tantiem (liquidating dividend), when company tdk bayar
dividend, rugi terus
- Any kind of bonus or payment that taken from retained earnings
Concealed dividend (dividen terselubung)
- Benefit in kind given by the employer that not a tax subject, or
subject to final income tax, or taxpayer that used special
deemed profit. Example : Airplane, Ship, construction, embassy,
International organization
INCOME TAX ARTICLE 21 POLICY
- Withhold from employee income
- Paid by company (on behalf of employee)
- Given an income tax allowance (Tunjangan Pajak) sometime
using Gross up
ANALYSIS OF INCOME TAX ARTICLE 21 POLICY
A. Withhold from employee income
- Traditional and usual method
- Some employee is not suitable, since it will reduce the take home
pay
Effect:
Employee : Take home pay reduced UNHAPPY
Employer : Nothing NOTHING
B. Paid by employer (company)
- Usually to maintain good / loyal / important employee company
bargaining position is low
- Effect :
Employer: companies accrued higher expense but it is an
NDE accounting profit is low, but tax payable is high
UNHAPPY
Employee : Higher take home pay HAPPY
C. Given an income tax allowance (Tunjangan Pajak)
- sometime using Gross up
Solution for two previous methods
Inc tax article 21 still be withhold from employee income, but
tax allowance can compensate the reducing THP
Effect: Employer tax allowance given is a DE
accounting profit low, tax payable is also low HAPPY
Employee higher take home pay using gross up
INCOME TAX WITHHOLD = TAX ALLOWANCE
ACCOUNTING ANALYSIS
- Mr Arie invited to give a general lecture in a special event,
organized by EO XYZ
- EO XYZ give Rp. 100 million as a fee.
- How income tax analysis using accounting for three alternatives
(A, B, C)?
N Al EO Journal Arie Journal
o t
1. A Dr.Salaries Expense Dr. Cash 95
100 Dr. Inc T 21 Prepaid 5
Cr. Inc tax art 21 payable Cr. Fee Revenue 100
5
Cr.Cash
95
2. B Dr. Salaries Expense Dr. Cash 100
100 Dr. Inc T 21 Prepaid 5
Dr. Inc tax art 21 exp Cr. Fee Revenue 105
5
Cr. Inc tax art 21 payable
5
Cr. Cash
95
3. C Dr. Salaries Expense Dr. Cash 100
105,263 Dr. Inc T 21 Prepaid 5,263
Cr. Inc tax art 21 payable Cr. Fee Revenue
5,263 105,263
Cr. Cash
100

GROSS UP METHOD EQUATION


TAX ALLOWANCE = Income tax without tax allowance ( 1- tax rate )
Notes: 1. This equation can be apply only when the tax tariff is not
progressive and tax base is a gross income 2. Otherwise, for employee
income tax, calculation can be done using software (usually excel
based)
RECONCILIATION
- Reconcile Salary Expense (Accounting) vs salary Expense (Tax)
- In Salary Expense (Accounting), there is an expense that subject
to income tax article 21 and not.
- Make sure that all salary expense, that subject to income tax
article 21 already withhold
TRANSACTION SELECTIONS
- Tax clause in a contract?
- Paid by employer or gross-up tax allowances?
- Business trip cost (uang saku) : Lump-sum or reimbursement?
- Food : Food allowances or providing food
- Health : given health facility or health allowance

OVERVIEW INCOME TAX ARTICLE 22


Income tax withhold from:
Transaction with government treasurer (bendahara pemerintah)
sales of goods
Transaction with special / certain entities, such as ( State owned
enterprise, automotive, paper, steel,pharmacy, cement)
purchase of goods
Import transactions
Certain corporate entities sales of very luxurious goods
OVERVIEW INCOME TAX ARTICLE 23

Tax withhold from capital income, such as:


Dividend Equity capital
Interest Debt capital
Royalties Intellectual capital
Rental asset capital
Tax withhold from service or any activity, except that subject to Income
Tax Article 21
OVERVIEW INCOME TAX ARTICLE 4(2)
Tax withhold from income that subject to FINAL INCOME TAX
Characteristics:
Tax object and tariff regulated by Government Regulations
(Peraturan Pemerintah) Banks Interest, Bond Interest,
Cooperation interest, Sales of stock, rent of land or building,
acqusition right of land and building, lottery, etc.
Income that subject to final IT doest need to be calculated to get
total income (assume to be FINAL when withhold)
Income tax withhold cant be credited against income tax
payable
Expense to obtain income that subject to final income tax is non
deductible expense
OVERVIEW INCOME TAX ARTICLE 26
Tax withhold from any income receive by non-domestic taxpayer
Income can be in form of:
Interest, dividend, royalties, rent
Taxable income after income tax payable of permanent
establishment
Sale of asset in Indonesia
Insurance premium paid abroad
TAX PLANNING STRATEGIES FOR INCOME TAX ARTICLE 22, 23, 4(2), 26
Usually applied to income tax article 23 and 26
For:
Income tax article 22, it is not practicable to implement, since
the tariff and tax base is certain and its limited use
Income tax article 24, since it is a final income tax and cant
be deducted for tax credit, there is no use in managing this
kind of tax

Contract Clause Problem


Conflict in Withholding Tax
Reconciliation
Contract Clause with Non Domestic TP
CONTRACT CLAUSE
Sometime contract is not clear enough (its tax base), so tax
payable is higher than it should or there is tax withhold, but it
should not withhold.
Contract also represent any rights and obligations, e.g Rights to
receive payment, obligations to paid, rights to withhold tax, etc.
EXAMPLE:
1. PT Y arrange a contract with customer PT X. PT Y will
provide an integrated accounting information system
service for PT X. Integrated accounting information system
service include:
Provide hardware for information system
Develop software for information system
Train to the user
Maintanance of system
2. The cost of this service totally is Rp. 600.000.000. The
detail cost caluculation is:
Hardware cost (to obtain material) Rp. 250.000.000
Labor cost for develop hardware and software Rp.
150.000.000
Training cost, including labor cost Rp. 50.000.000 and
training material Rp. 50.000.000
Maintain service Rp. 100.000.000
PROBLEMS ASSUMPTION 1
In contract, PT X stated total amount only, not breakdown the
detail
Income tax withhold will be Income tax article 23:
600.000.000 x 2% = 12.000.000
PROBLEMSASSUMPTION 2
In contract, PT X stated total amount but break down all the
detail amount
Income tax withhold will be based on tax object
Hardware cost non taxable object
Labor cost for develop hardware and software Income
tax article 23
Training cost, including labor cost inc tax article 23 and
training material non taxable object
Maintain service Rp. 100.000.000 income tax article 23
Assume total income subject to income tax article 23 is :
300.000.000 x 2% = 6.000.000
Tax saving from contract clause:12.000.000 6.000.000 =
6.000.000 (50%)
WITHHOLDING TAX CONFLICT
Often conflict happen between service provider and providee
(the one that ask for service)
Service provider often want to get net amount of payment
(without any tax deductions)
EXAMPLE:
1. Assume PT Z enter into contract with PT R for consulting
service. The amount paid by PT Z is Rp. 50.000.000
2. Income tax 23 withhold from PT R will be Rp. 1.000.000
(50.000.000 x 2%)
3. Questions : Who should paid the tax?
A. PT R
B. PT Z
SIMULATION
Sit PT R Revenue (in 000) PT Z Expense
A Dr. Cash 49.000 Dr. Cons Exp 50.000
Dr. Prepaid Inc T 23 1.000 Cr. Cash 49.000
Cr. Fee Revenue 50.000. Cr. Inc T 23 Payable
1.000
B Dr. Cash 50.000 Dr. Cons Exp 50.00
Dr. Prepaid Inc T 23 1.000 Dr. Inc T 23 Exp 1.000
Cr. Fee Revenue 51.000. Cr. Cash 50.000
Cr. Inc T 23 Payable 1.000
Point A : PT R is not happy
Point B : PT Z is not happy (Income Tax 23 expense is not
deductible expense)
SOLUTION
Use gross up technique
By using gross up, we know that income tax withhold will be:
1.000.000(1 0,02) = 1.020.408

SIMULATION
Sit PT R Revenue (in 000) PT Z Expense
C Dr. Cash 50.000 Dr. Cons Exp 51.020
Dr. Prepaid Inc T 23 1.020 Cr. Cash 50.000
Cr. Fee Revenue 51.020. Cr. Inc T 23 Payable
1.020
Point C: PT R and Z are happy

PROBLEM IN GROSS UP
Gross up also need to adjust a contract and need to apply on two
sides
Usually gross up only applied on one side Payment side
(accounting side only)
E.g Contract, Invoice, Billing stated that total payment is Rp.
50.000.000, but if we look at journal the expense is Rp.
51.020.408.
Expense and contract must be the same (SUBSTANCE = FORM)
if not the same FISCAL CORECTION, EXPENSE WILL BE
50.000.000 INCOME TAX HIGHER!!!

TWO SIDES GROSS UP


Gross up also needed to adjust its contract, invoice and all report
regarding the payment.
E.g Contract state Rp. 51.020.408, Tax invoice Rp. 51.020.408
and so on

RECONCILIATION
Reconcile :
o Income Statement, specifically in expense account and or
some revenue account
o Period Income Tax Return (SPT Masa PPh 23/26)
Reconciliation is to make sure all expense that subject to income
tax art 23 and 26, or even 22 and 4(2)

CONTRACT CLAUSE WITH NON DOMESTIC TP

Contract clause must specify define a tax base (tax object and
tax calculation), who bears the tax, and tariff that will be
imposed.
Company need to look whether is there any tax treaty or not, if
yes used the tariff and rule stated in tax treaty
Taxpayer must profide Certificate of Residence Taxpayer (Surat
Keterangan Domisili) if cant used Inc Tax Article 26 tariff
20% of Gross Income
Gross profit method and also contract clause can also be used
(look the specific rules)