What Is A Preliminary Audit?

Perhaps many taxpayers are unfamiliar with preliminary audits. This type of investigation is indeed different from a tax audit that is commonly carried out on the taxpayers and generally aims to assess taxpayers’ compliance and other purposes.

The term preliminary audit is very closely related to investigations. Tax provisions in Indonesia began to further adopt preliminary audits when Law No. 28 of 2007 concerning the Third Amendment to Law No. 6 of 1983 concerning General Provisions and Tax Procedures came into force.

Article 43A paragraph 1 of the General Provisions and Tax Procedures Law states that the Director General of Taxes based on information, data, reports, and complaints is authorized to conduct a preliminary audit prior to a tax crime investigation.

As such, what does preliminary audit refer to?

As mentioned in the General Provisions and Tax Procedures Law, an audit is a series of activities to collect and process data, information and/or evidence conducted in an objective and professional manner based on auditing standards to assess tax compliance in fulfilling tax obligations and/or for other purposes to implement statutory tax provisions.

On the other hand, preliminary evidence is a condition, conduct and/or evidence in the form of information, writings or objects that may strongly indicate a tax crime is occurring or has occurred and committed by anyone which may cause losses in state revenues is occurring or has occurred. In other words, preliminary audit refers to an investigation conducted to find preliminary evidence of whether an alleged tax crime has occurred.

A preliminary audit is carried out to confirm that there is evidence of tax deviations that may be used as a reference for investigating tax crimes. No investigation is conducted without being preceded by a preliminary audit. This suggests that an investigation be carried out if there are indications of tax deviations based on the preliminary evidence.

In this case, a preliminary audit is a tool that aims to reveal the existence of the preliminary evidence of an alleged tax crime. If found, tax deviations and crimes will be followed up in the investigation.

On the other hand, if there is no indication of tax deviations and crimes, the information, data, reports or complaints cannot be used as evidence to legalise the alleged tax crimes.

The Basis of preliminary audits

The preliminary evidence that will be investigated is focused on the circumstances, actions and/or evidence in the form of information, writings or objects that can provide hints of alleged tax crimes and losses to state revenues, including those sourced from:

• Information: information both submitted orally and in writing that can be developed and analysed to determine whether a tax crime has occurred.
• Data: a collection of numbers, letters, words or images in the form of letters, documents, books of account or records, either in the electronic or non-electronic format, which may be developed and analysed to determine whether there is preliminary evidence or not, constituting the basis for reporting that has not been analysed.
• Report: the notification submitted by a person or institution due to rights and/or obligations pursuant to the law to the competent authority concerning an alleged occurrence or occurrence of a tax crime.
• Complaint: notification accompanied by a request by an interested party to an authorized official to take action according to the law of a private person or entity that has committed a Criminal Act in the Field of Taxation that is detrimental to him.

Pursuant to the Minister of Finance Regulation (MoF Reg.) No. 239/PMK.03/2014, the Director General of Taxes is authorised to conduct a preliminary audit based on information, data, reports, and complaints that will be developed and analysed through intelligence or observation activities.

Scope of preliminary audits

The scope of a preliminary audit is the alleged criminal event specified in the preliminary audit warrant. In other words, the preliminary audit warrant is the basis for the implementation of a preliminary audit by the preliminary investigator team.

The types of preliminary audits consist of public and restricted preliminary audits. A public preliminary audit is carried out if the preliminary audit is related to the application for tax refunds as referred to in Article 17B of the General Provisions and Tax Procedures Law or is a follow-up to an audit to assess compliance with tax obligations.

A public preliminary audit is carried out with written notice of the preliminary audit to the individual or institution subject to the preliminary audit. On the other hand, the restricted preliminary audit is carried out without notice of the preliminary audit to the individual or institution subject to the preliminary audit.

A public preliminary audit shall be carried out within a period of not more than 12 months from the date the notice of preliminary audit is submitted to the date of the Preliminary Audit Report.

A restricted preliminary audit shall be carried out within a period of not more than 12 months from the date the preliminary audit warrant is received by the preliminary investigators until the date of the Preliminary Audit Report. Procedures and standards for the implementation of preliminary audits as well as the obligations, rights and authorities in preliminary audits are currently regulated in MoF Reg. 239/2014. (amu)