Indonesian Tax Laws Harmonisation.pdf

AHRP Legal Alert Page 1 of 9
Legal Alert February 2022
Indonesian Tax Laws Harmonisation: What’s
Changed?
I. Introduction
Taxes are mandatory contributions from individuals or entities to the state, which
will be utilised to meet the state’s necessity and the people’s welfare. The
government utilises taxes to provide welfare distribution by facilitating health
insurance, government support or aid, and public facilities procurement.
On 29 October 2021, the Indonesian government enacted Law Number 7 of 2021
on Harmonisation of Tax Regulations (“Law No. 7/2021”), an overarching law that
consolidates the primary state tax laws. This law was formulated based on the
urgency to place taxation as one of the embodiments of state obligations to
improve welfare, justice, and social development.1 The consolidation strategy
manifested in Law No. 7/2021 is aimed to increase sustainable economic growth
and support accelerated economic recovery by improving budget deficits and
increasing tax ratios.2
To achieve those goals, the government implements ground-breaking
amendments and additions to specific tax policies, which affects all tax subjects,
whether individuals or entities, both domestic and foreign. This writing will provide
an insight into the key amendments and additions in the Indonesian tax law under
Law No. 7/2021, which focuses on General Provisions and Tax Procedures,
Income Tax, Value Added Tax, as well as other notable additions.
II. Recent Changes of Indonesian Tax Laws
The Indonesian government recently enacted Law No. 7/2021 on 29 October 2021
that harmonises tax regulations in Indonesia. The new law is purposed to
consolidate the recent amendments made to 4 (four) tax regulations, i.e., Law
Number 6 of 1983 on the General Provisions and Tax Procedures (“Law No.
6/1983”), Law Number 7 of 1983 on Income Tax (“Law No. 7/1983”), Law Number
8 of 1983 on Value Added Tax for Goods and Services and Sales Tax on Luxury
Goods (“Law No. 8/1983”), and Law Number 11 of 1995 on Excise Duties (“Law
No. 11/1995”), all of which have been partially amended in Law Number 11 of 2020
on Job Creation (“Law No. 11/2020”). Apart from centralising the already existing
tax regulations, Law No. 7/2021 also introduces new forms of tax obligations.
A. General Provisions and Tax Procedures
The General Provisions and Tax Procedures was first enacted in 1983 to provide
a guideline for taxpayers to fulfil their tax obligations. Law No. 6/1983 had been
amended four times by 2009 before the final changes were included under Law
1
Consideration (a) Law No. 7/2021.
2
Consideration (b) Law No. 7/2021.
On 29th
October 2021, the
Indonesian government
issued Law No. 7/2021
that harmonises the
existing General
Provisions and Tax
Procedures, Income Tax,
VAT, and other tax-related
laws. The newly enacted
law introduces policy
changes and new tax
impositions that affect all
taxpayers in Indonesia.

No. 11/2020. Several changes were introduced for the General Provisions and Tax
Procedures through Law No. 7/2021, which shall be elaborated further in the
following.
A.1. Identification Number as the Taxpayer Number
With the new law, the government is taking the initiative to change existing
taxpayer identification number in exchange for personal identification
number or nomor induk kependudukan3 that can be found on the taxpayers’
ID or family cards. This is an effort to integrate and provide ease of
administration for an individual to become a taxpayer. Meanwhile, the
previous provision will remain for legal entities whose taxpayer number will
be assigned upon registering the entity to the tax authority.4
A.2. Tax Sanctions
Law No. 7/2021 also introduces three significant amendments on tax
sanction in the Indonesian tax system that reduce the thresholds previously
set in Law No. 6/1983, namely (i) a reduced penalty percentage for
taxpayers who fail to report in the annual tax assessment, (ii) a reduced
penalty percentage for unsuccessful legal actions on the tax audit results,
from the objection up to judicial review stage, and (iii) a reduced sanction for
state loss cases.
First, Indonesian taxpayers that fail to report or misreported their annual
income tax assessments to the tax authority as mandated under Article 3
(3) and (3a) Law No. 6/1983, as well as for Value Added Tax and Sales Tax
on Luxury Goods are subject to a lower penalty percentage compared to
what was regulated in the General Provisions and Tax Procedures. The
margins are as follows:5
Types of Sanction
Previously under
Law No. 6/1983
Amendment under
Law No. 7/2021
Underpaid Income Tax 50% Subject to a monthly
interest with an
uplifting factor of 20%*
Under-assessed Income
Tax
100% Subject to a monthly
interest with an
uplifting factor of 20%*
Income Tax Non-Payment 100% 75%
Value Added Tax and
Sales Tax on Luxury Goods
Underpayment
100% 75%
*) applies for a maximum of 24 months.
Table 1. Changes to Penalty Percentage for Failure to or Incorrectly Report
Annual Income Tax
3
Article 2 (1) Law No. 7/2021 Jo. Article 2 (1a) Law No. 6/1983.
4
Article 2 (4) Law No. 6/1983.
5
Article 2 (2) and (3) Law No. 7/2021 Jo. Article 8 and Article 13 Law No. 6/1983.

Second, the new consolidated law includes changes on penalty percentage
for taxpayers that are unsuccessful in taking legal actions against the tax
audit result. Referring to Article 2 (7) Law No. 7/2021 Jo. Article 27 Law No.
6/1983, when the tax authority issues a Letter of Underpayment or Surat
Ketetapan Kurang Bayar (SKPB) based on Letter of Audit Result or Surat
Penetapan Hasil Pemeriksaan (SPHP), taxpayers are granted with the right
to challenge such findings by sequentially filing for an objection to the
Director-General of Tax or Direktur Jenderal Pajak (“DGT”), appeals to the
Tax Court, and finally a judicial review to the Supreme Court. Suppose the
legal action results in a negative decision, meaning that the taxpayers
cannot overturn the DGT’s tax audit result. In that case, the tax authority will
impose a penalty from the total disputed tax amount. With Law No. 7/2021
enacted, the penalty percentages per stage of legal actions have been
lowered to the following rate:6
Legal Actions
Previously under
Law No. 6/1983
Amendment under
Law No. 7/2021
Objection 50% 30%
Appeals 100% 60%
Judicial Review - 60%
Table 2. Changes to Penalty Percentage for Legal Actions taken against
DGT’s Audit
Third, Law No. 7/2021 introduces forms of sanction for tax crimes proscribed
in the General Provisions and Tax Procedures that are included under the
subsections of Article 44B Law No. 6/1983, consisting of the following:7
Description
Amendment under
Law No. 7/2021
Unintended Tax
Crime8
Full payment of tax dues + sanction of 1x
underpaid tax
Intended Tax
Crime9
underpaid tax
Tax Crime of
Forging Tax
Invoice/Slip10
underpaid tax
Table 3. Sanctions for Tax Crimes relating to Reporting
A.3. International Tax
There are 3 (three) new points introduced in Law No. 6/1983 relating to
international tax, namely:
a. according to Article 2 (5) Law No. 7/2021, a new provision is added
as Article 20A Law No. 6/1983 that regulates the request and/or to
provide assistance for international tax collection with other countries.
6
Article 2 (7) Law No. 7/2021 Jo. Article 27 Law No. 6/1983.
7
Article 2 (16) Law No. 7/2021 Jo. Article 44B Law No. 6/1983.
8
Article 38 Law No. 6/1983.
9
10
Article 39A Law No. 6/1983.

The cooperation is limited to countries under a bilateral or a
multilateral international agreement with Indonesia.11 The agreement
can also cover other topics, such as the prevention of double-taxation,
convention on tax administration, or other international agreements;
and
b. according to Article 2 (8) Law No. 7/2021, a new provision has been
added as Article 27C Law No. 6/1983 that regulates Mutual
Agreement Procedure (“MAP”) as a subsequent effort of international
cooperation relating to double taxation.
Previously, MAP procedure was regulated under the Minister of Finance
Regulation No. 240/PMK.03/2014 on Mutual Agreement Procedure
following the ratification of numerous tax treaties, which was then annulled
and changed by Minister of Finance Regulation No. 49/PMK.03/2019 (“MoF
Reg. No. 49/2019”). MAP essentially means an administrative step usually
regulated within each tax treaty and is carried out by the authorized tax
official from two signatory states to resolve double taxation issue.12
A.4. Refining the Scope of Tax Crime
Another major change set out in Law No. 7/2021 is the amendment to Law
No. 6/1983 provisions on tax crimes. Some of these changes include a
limitation period of 10 (ten) years,13 preliminary investigation,14 cessation of
investigation,15 adding the tax investigator’s authority to impose blockage
and confiscation,16 non-substitutable fines,17 and in-absentia trial.18
B. Income Tax
Law No. 7/1983 first introduced income tax and its implementation in Indonesia. It
has been amended 5 (five) times before the enactment of Law No. 11/2020, and
this topic is now consolidated within the new tax harmonisation law.
Income tax is imposed on individuals, persons, and entities regarding their
earnings or acquired income during a tax year.19 It is imposed on individuals, an
undivided unit that replaces the individuals who are entitled to it, entities, and
11
Article 20A (1) Law No. 6/1983.
12
See definition in Article 1 (5) and (6) MoF Reg. No. 49/2019.
13
Article 2 (12) Law No. 7/2021 Jo. Article 40 Law No. 6/1983.
14
Article 2 (13) Law No. 7/2021 Jo. Article 43A Law No. 6/1983.
15
Article 2 (15) Law No. 7/2021 Jo. Article 44A Law No. 6/1983.
16
Article 2 (14) Law No. 7/2021 Jo. Article 44 (2) Law No. 6/1983.
17
Article 2 (17) Law No. 7/2021 Jo. Article 44C Law No. 6/1983.
18
Article 2 (17) Law No. 7/2021 Jo. Article 44D Law No. 6/1983.
19

permanent establishments.20 They are further categorised into domestic and
foreign tax subjects,21 which are elaborated in the illustration below:22
Diagram 1. Subjects of Income Tax
This section will highlight the notable amendments made by Law No. 7/2021 in
relation to income tax, which covers the provisions on: (i) tax rate; (ii) non-taxable
income; (iii) dividends; (iv) comestibles and/or benefits; and (v) government-to-
government cooperation.
B.1. Income Tax Rate
The consolidated law imposes a new income tax rate for all subjects or
taxpayers. For domestic individuals, there is an addition to the tax
income brackets resulting in new tax rates based on 5 (five) tax income
brackets, which can be seen in the comparison table below:23
Previously under Law No. 7/1983 Amendments under Law No. 7/2021
Taxable Income
Brackets
Tax
Rate
Taxable Income Brackets
Tax
Rate
up to Rp50.000.000,- 5% up to Rp60.000.000,- 5%
above Rp50.000.000,- up
to Rp250.000.000,-
15% above Rp60.000.000,- up to
Rp250.000.000,-
15%
above Rp250.000.000 up
to Rp500.000.000,-
25% above Rp250.000.000 up to
Rp500.000.000,-
25%
above Rp500.000.000,- 30% above Rp500.000.000 up to
Rp5.000.000.000,-
30%
- - above Rp5.000.000.000,- 35%
Table 4. Comparison of Taxable Income Brackets and Tax Rate for Individuals
20
21
22
23
Article 3 (7) Law No. 7/2021 Jo. Article 17 (1) (a) Law No. 7/1983.

The new income tax rate imposed on domestic corporate taxpayers and
permanent establishments is 22% (twenty-two percent), that is
applicable from 2022.24
Type of Taxpayers
Previously under
Law No. 7/1983
Amendment under
Law No. 7/2021
2008 2010 2022
Domestic Corporate
Taxpayers
28% 25% 22%
Permanent
Establishments
28% 25% 22%
Table 5. Comparison of Tax Rate for Corporate Taxpayers and Permanent
Establishments
Moreover, there is a 3% (three percent) reduction from 22% (twenty-two
percent) rate for domestic corporate taxpayers that are in the form of a public
company with a total number of paid-up shares traded on the stock
exchange in Indonesia of at least 40% (forty percent) and fulfil the following
requirements:25
a. shares must be owned by at least 300 (three hundred) parties;
b. each party may only own shares less than 5% (five percent) of the
total issued and fully paid-up shares;
c. must be a public company with a total number of paid-up shares
traded on the stock exchange in Indonesia of at least 40% (forty
percent) within 183 (one hundred eighty-three) calendar days in 1
(one) tax year;
d. must submit a report on the fulfilment of the requirements to the DGT.
B.2. Non-Taxable Income
Non-taxable income refers to the deduction granted to domestic taxpayers,
which is the amount of income that is not subject to tax. Law No. 7/2021 has
increased the minimum amount of non-taxable income that was previously
prescribed under Law No. 7/1983, which can be seen in the table below:26
Types of Taxpayers
Previously under
Law No. 7/1983
Amendment under
Law No. 7/2021
Individual Rp15.840.000,- Rp54.000.000,-
Married Rp1.320.000,- Rp4.500.000,-
Wife whose income is
combined with the husband
Rp15.840.000,- Rp54.000.000,-
Member of the family by
blood and by marriage in a
direct lineage as well as
adopted children
Rp1.320.000,- Rp4.500.000,-
Table 4. Comparison of Non-Taxable Income
24
Article 3 (7) Law No. 7/2021 Jo. Article 17 (1) (b) Law No. 7/1983.
25
Article 3 (7) Law No. 7/2021 Jo. Article 17 (2) (b) Law No. 7/1983 Jo. Article 3 (2) GR
No. 30/2020.
26

The implementation of the non-taxable income is determined based on the
situation at the beginning of the tax year.27 Notwithstanding, it should be
noted that said amounts may be adjusted with a Minister of Finance
regulation after consultations with the House of Representatives.28
B.3. Non-Taxable Income
The provisions regarding dividends under Law No. 7/2021 reiterate the
amendments set out in Law No. 11/2020, which have made significant
changes to the previously enacted Law No. 36/2008. According to Article 4
(3) (f) Law No. 36/2008, dividends are exempted from being considered as
taxable objects if the dividends are received from retained earning reserves,
and specifically for limited liability companies, state-owned and regional-
owned enterprises who receive dividends, the share ownership in the
company who pays the dividend must be at least 25% (twenty-five percent)
of the issued capital.
However, the newly enacted Law No. 7/2021 has further elaborated the
terms for exempting dividends as taxable objects. Article 4 (3) (f) Law No.
7/2021 introduces the classification of domestic dividends and dividends
originating from overseas, which have different requirements in order to be
exempted as taxable objects.
For a domestic dividend to be exempted as a taxable object, it must be
received or obtained by domestic individuals and/or by domestic entities and
is invested in Indonesia for a certain period.29 Unlike the previous law, there
is no minimum requirement of shared ownership, resulting in the exemption
of a dividend as a taxable object only needing to fulfil the domestic
requirement.
On the other hand, exemption of dividends originating from overseas as a
taxable object is more specific and comprehensive various factors of
consideration. Firstly, it should be noted that there are 2 (two) sub-
categories of dividends originating from overseas, which are shares traded
on a stock exchange and shares that are not traded on a stock exchange.30
Generally, overseas dividends obtained by domestic taxpayers are
exempted as taxable objects, so long as they are invested or used to support
other business activities in Indonesia within a certain period, as well as fulfil
the following requirements:31
a. the said invested dividend and income after tax shall at least amount
to 30% (thirty percent) of the profit after tax; or
b. dividends originating from overseas business entities whose shares
are not traded on a stock exchange are invested in Indonesia before
the DGT issues a tax assessment on said dividends based on the
application of Article 18 (2) Law No. 7/2021.
27
28
29
Article 3 (1) Law No. 7/2021 Jo. Article 4 (3) (f) (1) Law No. 7/1983.
30
31

According to Article 18 (2) Law No. 7/2021, the Minister of Finance is
authorised to stipulate when dividends that are obtained by domestic
taxpayers having capital participation in overseas enterprises other than
business entities that sell their shares in the stock exchange, under the
condition that the amount of capital participation of such domestic taxpayers,
whether separately or combined with other domestic taxpayers, is a
minimum of 50% (fifty percent) of the total paid-up shares. If the 50% (fifty
percent) requirement is not met, such dividends are not exempted from the
imposition of income tax.32
Moreover, suppose the dividends that originated from shares that are not
traded on a stock exchange and income after tax are invested in Indonesia
are less than 30% (thirty percent) of the total profit after tax. In that case,
there are 3 (three) provisions that should be noted: first, the said dividends
and income after tax which are invested are exempted from the imposition
of income tax; second, the difference of 30 (thirty percent) profit after tax
deducted with dividends and/or income after tax which are invested are
subject to the imposition of income tax; and third, the remaining profit after
tax deducted by dividends and/or income after tax which are invested and
the difference of 30 (thirty percent) profit after tax deducted with dividends
and/or income after tax which are invested are not subject to income tax.33
Whereas in the case that the dividends that are not traded on a stock
exchange and income after tax from a permanent overseas establishment
are invested in Indonesia, amounting to more than 30% (thirty percent) of
the total profit after tax, it should be noted that the said dividends and income
after tax which are invested are exempted from the imposition of income tax,
and the remaining profit after tax deducted by dividends and/or income after
tax which are invested as well as the difference is not subject to income
tax.34
B.4. Comestibles and/or Benefits
Another noteworthy amendment to the income tax provision is the addition
of comestibles and benefits as taxable objects for individual taxpayers as
prescribed in Article 3 (1) Law No. 7/2021 Jo. Article 4 (1) (a) Law No.
7/1983. However, there are certain forms of comestibles and/or benefits that
are exempted from the imposition of income tax, which include:35
a. food, food ingredients, beverage ingredients, and/or beverages for all
employees;
b. comestibles and/or benefits provided in certain regions;
c. comestibles and/or benefits that must be provided by employers;
d. comestibles and/or benefits sourced from or funded by the State
Revenue and Expenditure Budget or Anggaran Pendapatan dan
Belanja Negara and/or Regional Revenue and Expenditure Budget or
Anggaran Pendapatan dan Belanja Daerah; and
32
Article 3 (1) Law No. 7/2021 Jo. Article 4 (3) (f) (6) of Law No. 7/1983.
33
34
35
Article 3 (1) Law No. 7/2021 Jo. Article 4 (3) (d) Law No. 7/1983.

e. comestibles and/or benefits in certain types and/or with certain
limitations.
Further explanation regarding the qualifications for the exemption is not
elaborated in Law No. 7/2021. However, we can expect an implementing
regulation on said provisions and their application.
B.5. Redefined Government-to-Government Cooperation
Government-to-government cooperation to prevent double taxation and tax
evasion was briefly regulated under Article 32A Law No. 7/1983, which only
grants the authority to the government to carry out such cooperation by way
of treaty. Nevertheless, this provision has been amended to increase the
economic relationship with partnered states or jurisdictions and stay relevant
amidst the dynamic environment of international tax.36
Under Article 3 (9) Law No. 7/2021, the government has the authority to
enter into and/or implement an agreement and/or deal in the taxation sector
with partnering states and/or jurisdictions, whether bilaterally or
multilaterally, for the following purposes:
a. avoidance of double taxation and prevention of tax evasion;
b. prevention of erosion of the tax base and shifting of profits;
c. exchange of tax information;
d. tax collection assistance; and
e. other tax cooperation.
The new prevailing provision allows more room for government-to-
government cooperation and serves a broader purpose.
C. VAT
There are 2 (two) major amendments introduced in Law No. 7/2021 relating to
VAT, which are:
C.1. Increased VAT Rate
One significant aspect that Law No. 7/2021 introduces is the increased VAT
rate from the initial 10% (ten percent) rate per goods and services to 11%
(eleven percent), which according to Article 4 (2) Law No. 7/2021 Jo. Article
7 (1) (a) Law No. 8/1983 will apply from 1 April 2022 onwards. The rate will
eventually be increased by 1 January 2025 to 12% (twelve percent).37
The newly enacted law does not address any amendments on the already
0% (zero percent) VAT rate for exported tangible and intangible goods as
well as services. However, according to Article 4 (2) Law No. 7/2021 Jo.
Article 7 (3) and (4) Law No. 8/1983, the VAT rate sets in sub-article (1) can
be lowered to 5% (five percent) or increased to 15% (fifteen percent) only if
the government issues a government regulation approved by the House of
Representatives by the time the yearly national budget is fixed.
36
Article 3 (9) Law No. 7/2021 Jo. Elucidation of Article 32A Law No. 7/1983.
37
Article 4 (2) Law No. 7/2021 Jo. Article 7 (1) (b) Law No. 8/1983.

C.2. Expansion of VAT Object’ Scope
Some various goods and services that were not taxed with VAT are now
considered as taxable objects as Article 4 (1) Law No. 7/2021 amends and
removes the comprehensive list provided in Article 4 (2) and (3) Law No.
8/1983. Goods that were exempted from VAT now considered VAT objects
include mining products, basic necessities needed by the public, and
money, gold bar, and bonds.38 Meanwhile, services such as medical, social,
finance, insurance, education, broadcasting, and transportation are no
longer exempted from VAT.
However, selective and limited measures can be imposed to exempt goods
and services now considered tax objects. The DGT facilitates such
measures with strict limitations to 'strategic' goods and services. Insofar, the
latest regulation regarding this facilitation is under the Government
Regulation No. 48 of 2020 on the Import and/or Delivery of Certain Taxable
Goods Classified as Strategic Goods Exempted from VAT, and Ministry of
Finance Regulation No. 115/PMK.03/2021 that were implemented before
Law No. 7/2021 was enacted.
D. Other Notable Changes
In addition to the changes introduced for the general provisions and tax
procedures, income tax, and VAT, other major overhauls that are also included
in Law No. 7/2021 on other tax aspects that are worth noting, namely (i)
voluntary disclosure program, (ii) carbon tax, and (iii) excise duties.
D.1. Voluntary Disclosure Program
Tax compliance is a concern that has been addressed in Law No. 7/2021
through the Voluntary Disclosure Program.39 This program is designed to
improve tax compliance by providing the opportunity to taxpayers to
voluntarily report and disclose tax obligations, specifically regarding net
assets, that have not been fulfilled.40 The net assets refer to the value of
assets deducted by the value of debts in accordance with Law Number 11
of 2016 on Tax Amnesty (“Law No. 11/2016”),41 and obtained by the
taxpayer within the span of 1 January 1985 until 31 December 2015
pursuant to Article 1 (4) Minister of Finance Regulation Number
196/PMK.03/2021 of 2021 on Procedure on the Implementation of Taxpayer
Voluntary Disclosure Program (“MoF Reg. No. 196/2021”).
According to Article 6 (1) Law No. 7/2021, taxpayers can disclose their net
assets through an asset disclosure notification submitted to the DGT within
the period of 1 January 2022 up to 30 June 2022. The DGT is authorised to
issue a certificate upon the submission of asset disclosure notification and
38
Article 4 (2) (a), (b) and (d) Law No. 8/1983.
39
Paragraph (9) General Elucidation of Law No. 7/2021.
40
Ibid.
41
Article 5 (2) Law No. 7/2021 Jo. Article 1 (3) MoF Reg. No.196/2021.

correct or cancel the certificate if there is a discrepancy between the
disclosed net assets and the actual condition.42
There are essentially 2 (two) main benefits for taxpayers who have obtained
the said certificate. First, they are not subject to administrative sanction in
the form of an increase of 200% (two hundred percent) of unpaid or
underpaid income tax.43 Second, data and information sourced from asset
disclosure notification and their appendices administered by the Ministry of
Finance or other parties may not be used as the basis for preliminary
investigations, investigations, and/or criminal prosecution of taxpayers.44
D.2. Carbon Tax
To achieve Indonesia’s pledge to reduce carbon emission, the Indonesian
government will be imposing a carbon tax starting from April 2022.45 The
carbon tax would be levied on individuals and companies that primarily
engage in carbon-emitting activities that harm the environment, including
the sales and purchases of carbon-contained goods and other activities that
majorly contributes to the nation’s gas emissions.46
According to Article 13 (8) and (9) Law No. 7/2021, the tax carbon rate is to
be equivalent or even higher than market carbon prices per kilogram with
the lowest threshold is at IDR 30.00 (thirty Rupiah) per kilogram equivalent
carbon dioxide (CO2e). However, the Ministry of Finance has yet to regulate
this tax carbon rate, calculation, collection, payment, and reporting
mechanism set out by the law.47
Considering this taxation is relatively new, it will be implemented gradually
according to Article 17 (3) Law No. 7/2021, starting from 1 April 2022 for
coal-fired steam power plant (pembangkit listrik tenaga uap batubara) with
a fixed rate of IDR 30.00 (thirty Rupiah) per kilogram equivalent carbon
dioxide (CO2e) or other equivalent units.
D.3. Excise Duties
Excise duties are implemented on goods that bring significant revenues to
the government, however, the consumption and distribution must be
controlled as they can harm the user or the environment.48 According to
Article 4 (1) Law No. 11/1995, the targeted excisable goods are alcohol and
tobacco products, including cigarettes and cigars.
Through Law No. 7/2021, the government introduces several changes to
excise duties, namely (i) the inclusion of electric cigarettes, (ii) amendment
42
Article 6 (3) and (4) Law No. 7/2021.
43
44
45
Article 17 (3) and Article 13 (12) Law No. 7/2021.
46
47
See Article 13 (10) and (14) Law No. 7/2021.
48
Article 2 (1) (a) to (c) Law No. 11/1995.

to the inclusion and exclusion of excisable goods procedure, (iii) excise
offence investigation to recover state loss, and (iv) sanctions.
First, the harmonisation law adds electric cigarettes or e-cigarettes as an
excised object under Article 14 (1) Law No. 7/2021 Jo. Article 4 (1) (c) Law
No. 11/1995. An electric cigarette is defined as a liquified, solid, or other
forms of tobacco product that utilises a heat-based technology device that
simulates tobacco smoking, commonly known as vaping.
Second, the procedure of changing excised objects under Article 14 (1)
Law No. 7/2021 Jo. Article 4 (2) Law No. 11/1995, the scope of excisable
objects under Law No. 11/1995 must now be regulated by a government
regulation approved by the House of Representatives when the annual
state budget is fixed.
Third, Article 14 (2) Law No. 7/2021 introduces a new provision under
Article 40B that allows the customs and excise officer to conduct a
preliminary investigation (penelitian) on a potential excise offence. The
preliminary investigation will not advance to the investigation
(penyelidikan) stage if the following conditions occur:49
a. there in an allegation of criminal violations as regulated under Article
50, 52, 54, 56, and 58 Law No. 11/1995; and
b. the accused pays an administrative penalty fee of 3 (three) times from
the excise duty cost.
Fourth, in relation to the recovering state loss, Article 14 (2) Law No.
7/2021 introduces new provisions to Article 64 Law No. 11/1995 that
details the investigation procedure for an allegation of a criminal offence.
To prioritise the state’s income, by the request of the Minister of Finance,
the Attorney General may halt an investigation (penyelidikan) within 6 (six)
months since the request only if the alleged crime falls under Article 50,
52, 54, 56, and 58 Law No. 11/1995, and the accused pays administrative
penalty fee of 4 (four) times from the excise duty cost.50 However, should
the case already preceded to court, the accused may still pay the same
penalty fee, and the payment will be heavily considered to place indictment
without imprisonment charges.51
The changes mentioned above can be summarised as follows:
Stage
Previously under
Law No. 11/1995
Amendment under
Law No. 7/2021
Preliminary
Investigation
(penelitian)
Not regulated A penalty fee of 3x from
the excise duty cost
Investigation
(penyidikan)
Pay the main excise duty
cost + penalty fee of 4x
from the excise duty cost
A penalty fee of 4x from
the excise duty cost
Table 5. Penalty Fees to Stop Tax Crimes Investigation
49
Article 14 (2) Law No. 7/2021 Jo. 40B (3) Law No. 11/1995.
50
Article 14 (3) Law No. 7/2021 Jo. Article 64 (1) and (2) Law No. 11/1995.
51
Article 14 (3) Law No. 7/2021 Jo. Article 64 (3) and (4) Law No. 11/1995.

Diagram 2. Preliminary Investigation and Investigation Process on an Alleged
Excise Duty Crime

Bibliography/References
1. Law Number 7 of 2021 on Harmonisation of Tax Regulations (“Law No.
7/2021”).
2. Law Number 11 of 2020 on Job Creation (“Law No. 11/2020”).
3. Law Number 11 of 2016 on Tax Amnesty (“Law No. 11/2016”).
4. Law Number 6 of 1983 on the General Provisions and Tax Procedures as
lastly amended by Law No. 11/2020 (“Law No. 6/1983”).
5. Law Number 7 of 1983 on Income Tax as lastly amended by Law No.
11/2020 (“Law No. 7/1983”).
6. Law Number 8 of 1983 on Value Added Tax for Goods and Services and
Sales Tax on Luxury Goods as lastly amended by Law No. 11/2020 (“Law
No. 8/1983”).
7. Law Number 11 of 1995 on Excise Duties as lastly amended by Law No.
11/2020 (“Law No. 11/1995”).
8. Minister of Finance Regulation Number 196/PMK.03/2021 of 2021 on
Procedure on the Implementation of Taxpayer Voluntary Disclosure
Program (“MoF Reg. No. 196/2021”).
9. Minister of Finance Regulation No. 240/PMK.03/2014 on Mutual Agreement
Procedure as annulled and replaced by Minister of Finance Regulation No.
49/PMK.03/2019 (“MoF Reg. No. 49/2019”).

We will continue to follow the developments on this topic and provide additional information
as it becomes available. If you have any questions on this topic, please contact:
This publication has been prepared by AHRP for educational and informational purposes only. The information
contained in this publication is not intended and should not be construed as legal advice. Due to the rapidly
changing nature of law, AHRP makes no warranty or guarantee concerning the accuracy or completeness of
this content. You should consult with an attorney to review the current status of the law and how it applies to
your circumstances before deciding to take any action.
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