Indonesia to clamp down on corporate tax avoidance via transfer pricing, says tax office chief

JAKARTA, Feb 24 ― Indonesia will crack down on corporate tax avoidance via transfer pricing this year to try and recoup 200 trillion rupiah (RM56.6 billion) in lost state income mainly in the commodities sector, the new head of the tax office told Reuters.

Under the transfer pricing method, an Indonesian company sells its goods to a subsidiary in another country below market prices, and the subsidiary in turn sells it to the market, Sigit Priadi Pramudito, the director-general of taxes, said in an interview late yesterday.

The company then keeps the profits in that foreign country, Pramudito said. “There’s a lot of potential in this area. We suspect that all along, they have been using the transfer pricing method,” he said. “This year we will chase them.”

Most of the companies that avoid Indonesian taxes with this method are in the commodities or minerals sector, such as coal, palm oil and cocoa, he said.

Pramudito said the tax office has the authority to adjust the tax bill of a company if it suspects that a sale to a related entity is underpriced.

The tax office has collected more comprehensive data and is boosting the strength of its officers, he said, adding that it could take such companies to a tax court.

Indonesia is targeting tax revenue of 1,489.3 trillion rupiah this year, according to the 2015 revised state budget, up 30 per cent from last year’s collection.

Analysts have said this target is unrealistic. ― Reuters