Company fights lone battle against tax extortion

Company fights lone battle against tax extortion

Rendi A. Witular, The Jakarta Post, Jakarta

While members of the business community are generally afraid
to argue with tax officials and would rather compromise with them
in case of dispute, a local businessman has launched an all-out
legal battle against the tax office.

The Constitutional Court recently accepted a petition from
health equipment supplier PT Apota Wibawa Pratama to review the
legality of the tax tribunal, which it said had created
unfairness and a lack of legal certainty for the business
community.

Apota director B.Q. Vega told The Jakarta Post last week that
his company had decided to go to law after it fell victim to what
he described as "unscrupulous behavior" on the part of tax
officials, who were using the tax tribunal as a tool for
extorting taxpayers.

"We have taken into account all the risks and pressures that
may result from our actions ... Our effort is designed to
encourage others to join the fight," said Vega.

Apota's lawyer Denny Palilingan said the firm had decided to
petition the Constitutional Court to overturn Law No. 14/2002 on
the establishment of the tax tribunal, which he said was
repugnant to the 1945 Constitution.

He said the Constitution only recognized five courts -- the
criminal and civil courts (public courts), religious courts,
military courts, administrative courts and the Constitutional
Court.

"Since it is not among the courts recognized by the
Constitution, the legal standing of rulings handed down by the
Tax Tribunal is questionable," said Denny.

He said the tribunal would have to be abolished if the
Constitutional Court overturned the law.

In a second hearing with Apota last week, the Constitutional
Court decided to summon those involved in the drafting of the
law, including Minister of Finance Boediono and a number of
legislators from the House of Representatives.

According to Denny, the tax court law was unfair, as was
evident from the provision preventing taxpayers from appealing
against its rulings.

Another unfair provision was the requirement that a taxpayer
had to pay 50 percent of its total tax bill before filing an
objection with the tax court. This was considered as burdensome
as it could disrupt a company's cash flow, he said.

The high cost of filing objections with the court had caused
some businesspeople to prefer to bribe tax officials.

A source in the Directorate General of Taxation agreed that
the 50 percent payment requirement had often been abused by tax
officials to extort taxpayers.

The source explained that tax officials could inflate the
amount of the arrears owed by companies in order to discourage
them from going to the tax tribunal.

Companies that were unable to come up with 50 percent of the
tax arrears before going to the tax tribunal had no alternative
but to seek a compromise with tax officials, including paying
them bribes.

In the Apota case, the company booked a loss of Rp 240 million
(US$28,235) in 2000, but officials from the Mampang Prapatan tax
office in East Jakarta said the company had to pay Rp 877 billion
in corporate income tax.

Denny said that besides bringing the case to the
Constitutional Court, Apota had also filed an objection with the
East Jakarta Administrative Court over the size of its tax
assessment.

The company is also planning to report officials from the
Mampang Prapatan tax office to the police and the Attorney
General's Office for extortion.

When contacted for comment, the secretary of the Directorate
General of Taxation, Djazoeli Sadhani, said the directorate had
yet to receive information on the case, but that he would verify
the matter with his staff.