L&B Tax Reduction for Companies in the Red, What Are the Requirements?

Question:

Allow me to introduce myself, my name is Vina. I am a tax staff in a company engaged in the plantation sector. In the last few years, our company has been experiencing losses based on financial statements, making it difficult to settle several company liabilities.

The liabilities specifically pertain to land and building tax (pajak bumi dan bangunan, hereinafter referred to as L&B Tax) payable in the Notice of Tax Due (Surat Pemberitahuan Pajak Terutang, hereinafter referred to as SPPT). The tax is payable on Land and Building Tax objects in our plantation sector.

My question is, are there any provisions on the application for the reduction of Land and Building Tax payable? If so, what are the requirements? Kindly clarify. Thank You.

Vina, North Sumatra.

Answer:

Thank you for your question, Ms. Vina. To answer the question, we need to refer to Law No. 12 of 1985 concerning Land and Building Tax as amended several times, last amended by Law No. 12 of 1994 (Land and Building Tax Law).

The regulation elucidates that the minister of finance may provide L&B Tax reduction due to certain conditions of the taxable objects that are related to the tax subjects. Pursuant to Article 19 paragraph (2) of the Land and Building Tax Law, provisions relating to the granting of the tax reduction will be further stipulated through a minister of finance regulation (MoF Reg.).

Currently, the provisions related to L&B Tax reduction are stipulated under the Minister of Finance Regulation No. 129 of 2023 concerning the Granting of Land and Building Tax Reduction (MoF Reg. 129/2023) recently issued by the government. See ‘The DGT’s Official Statement on the New MoF Reg. on L&B Tax Reduction’.

Technically, L&B Tax reduction may be granted based on a taxpayer’s application for L&B Tax objects owned, held and/or utilised by the taxpayer, among others those in the plantation sector. This is stipulated under Article 2 paragraph (2) in conjunction with Article 3 paragraph (3) a of MoF Reg. 129/2023.

Moreover, the L&B Tax reduction is only given if the taxpayer experiences commercial losses and insolvencies for 2 consecutive years. This is stipulated under Article 3 paragraph (4) of MoF Reg. 129/2023. See 'Requirements for L&B Tax-P5L Reduction for Taxpayers in the Red’.

Pursuant to Article 3 paragraph (5) of MoF Reg. 129/2023, commercial losses refer to a condition of taxpayers’ inability to generate net operating profit because the amount of operating costs exceeds the amount of gross profit.

On the other hand, pursuant to Article 3 paragraph (6) of MoF Reg. 129/2023, insolvencies refer to a condition of taxpayers’ inability to pay short-term liabilities with current assets.

Please note that if the taxpayer maintains bookkeeping, when the application for L&B Tax is submitted, the commercial losses and insolvencies occur for 2 consecutive years until the end of the accounting year before the year the application for L&B Tax reduction is submitted. This is stipulated under Article 3 paragraph (7) subparagraph a of MoF Reg. 129/2023.

Other requirements to be fulfiled are as follows, first, your company does not file an objection against the SPPT. Second, not applying for the reduction or cancellation of the SPPT. Third, not applying for the rectification of the SPPT.

After fulfiling the above requirements, your company needs to take into account several provisions when applying for L&B Tax reduction pursuant to Article 5 paragraph (1) and Article 6 of MoF Reg. 129/2023, including:

1. the application for L&B Tax reduction is addressed to the director general of taxes and submitted through the tax office where the L&B Tax objects are registered. The format of the application refers to Appendix A of MoF Reg. 129/2023;

2. the application for L&B Tax reduction is submitted within a period of 3 months since the SPPT is received;

3. 1 application for L&B Tax reduction is submitted for 1 SPPT;

4. the application for L&B Tax reduction is submitted in writing in the Indonesian language stating the amount of L&B Tax reduction percentage applied for attached with the underlying reasons for the application;

5. the application is signed by the taxpayer or if not signed by the taxpayer, the application is attached with a special power of attorney pursuant to statutory provisions;

6. financial statements if your company is not obliged to file the annual corporate Income Tax Return to the tax office where the L&B Tax objects are registered.

The options for the submission of the application for L&B Tax reduction are stipulated under Article 7 paragraph (1) of MoF Reg. 129/2023 which reads:

“The application for the Land and Building Tax Reduction referred to in Article 5 may be submitted:

1. directly;

2. by post, a forwarder or courier service company with proof of postage; or

3. electronically.”

Please note, however, that the application for L&B Tax reduction may be submitted electronically only if the system is available. This is stated in Article 7 paragraph (1) subparagraph c of MoF Reg. 129/2023. See ‘If the System Is Ready, Apply for L&B Tax Reduction Electronically’.

See ‘If the System Is Ready, Apply for L&B Tax Reduction Electronically’.

This concludes our answer. We hope our answer satisfies your inquiries.

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