Why Should Assets be Disclosed for Tax Purposes?

By Andrean Rifaldo, the Directorate General of Taxes officer

Filing the Annual Tax Return has become a common obligation for many taxpayers every year. Throughout this year, it is estimated that more than 19 million taxpayers will need to submit the yearly statement.

Since the enactment of Income Tax Law in 1983, Indonesia has implemented a self-assessment tax system, wherein tax obligations rely on the awareness and voluntariness of the public. The requirement to submit the Annual Tax Return thus emerges to document tax payments for the preceding year.

There are three possible outcomes for the return: nil if there is nothing to be paid, underpaid if there is still a balance due, or overpaid if there is an excess of tax deductions by a third party.

To ensure precise calculations, taxpayers must accurately report all of the obtained income, expenses, and tax withholding certificates. However, income is not the sole piece of information that must be disclosed in the Annual Tax Return.

Regulations mandate the complete disclosure of assets and liabilities in the Annual Tax Return. Both individuals and corporations must provide detailed information about the type, year of acquisition, and cost value of their assets.

Exceptions apply solely to individuals whose income is derived exclusively from employment and does not exceed Rp60 million (~$3,800) annually. In such cases, they are only obligated to report the total value of assets and liabilities in the Annual Tax Return.

Nevertheless, the reported assets and liabilities do not impact the calculated tax value in the Annual Tax Return. The calculations are determined solely based on the reported income. Thus, why should assets be reported?

Yearly changes in asset value are crucial information in assessing the reasonableness of reported income. A substantial increase in asset value exceeding the amount of income could imply the existence of income yet unreported in the Annual Tax Return.

The Directorate General of Taxes may respond to the discovery by issuing a Letter Requesting the Explanation for Data and/or Information (SP2DK) to seek a response from the taxpayer.

The issuance of SP2DK does not automatically imply tax liabilities. Taxpayers need not be concerned, provided they can substantiate the fulfillment of all tax obligations.

Fundamentally, the periodic reporting of assets constitutes a crucial effort to address tax evasion practices. The concealment of assets, particularly in tax haven countries, often takes place to obscure income from tax obligations.

Indonesia is among the nations with the highest tax losses, as emphasized in The State of Tax Justice 2023 report. It is estimated that the country experiences an annual revenue loss of Rp40.9 trillion ($2.6 billion) due to tax evasion.

Various tax amnesty programs have been implemented to promote assets disclosure. Since the first tax reform in 2002, there have been three programs in 2008, 2016, and the latest being the Voluntary Disclosure Program (PPS) in 2022.

Throughout the six-month duration of the PPS, disclosed assets amounted to Rp594 trillion ($37.9 billion). These assets were not initially reported by over 247 thousand taxpayers.

The establishment of an asset database underscores Indonesia’s commitment to promoting global tax transparency. In 2023, Indonesia actively exchanged financial information with 81 destination countries and 110 source countries.

Reporting assets is an inherent obligation in the Annual Tax Return. Taxpayers are encouraged not to be concerned, as the reported asset information does not directly determine the calculated tax value.

By accurately and comprehensively reporting assets, we collectively contribute to the establishment of a more precise tax database, taking a step closer to active participation in global tax transparency.

*) This article represents the author's personal views and does not represent the stance of the institution. The Indonesian version of this article has been published on Kompas.com on January 23th, 2024.

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