Tax Planning Service

TAX PLANNING SERVICES

Category: Tax & Accounting
Written by Eri Budiman & supervised by Agung Maulana on 06/07/2023
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

Written by Eri Budiman & supervised by Agung Maulana on 08/08/2023
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

The purpose of tax planning is to fulfill tax obligations without violating applicable rules, by minimizing the amount of tax payments to obtain the expected profit and liquidity.

The tax regulations in Indonesia are diverse. The legal basis can be divided into local and central taxes based on regional levels or it can be differentiated into Income Tax (PPh) and Value Added Tax (VAT) based on the tax object.

Definition of Tax Planning

According to Chairil Anwar Pohan (2018: 371) states that:

“Tax planning is a process of organizing the taxpayer’s business in such a way that the tax debt, both income tax and other taxes, is in the minimum amount, as long as this does not violate the applicable statutory provisions“.

This is supported by the statement of Wibisono and Budiarso, 2021, which states that the goal of tax planning is not to evade taxes but to arrange them in such a way that the taxes paid are not more than the amount that should be paid, thus making the tax liabilities of each taxpayer efficient (Wibisono and Budiarso, 2021).

Income Tax

According to Mardiasmo (2018: 60), Income Tax is a tax imposed on individuals, companies or other legal entities on income earned. Meanwhile, when referring to Article 4 of the Law No. 7 Year 2021 on Harmonization of Tax Regulations, what is called income includes:

Reimbursement or compensation in respect of work or services received or obtained including salaries, wages, allowances, honoraria, commissions, bonuses, gratuities, pensions, or compensation in any other form including in kind and/or enjoyment, unless otherwise specified in this Law;
Prizes from sweepstakes or jobs or activities, and awards;
Operating profit;
Gain on sale or on transfer of property;
Recoveries of tax payments that have been charged as expenses and additional tax refund payments;
Interest includes premiums, discounts, and fees due to guarantees of debt repayment;
Dividends by name and in any form, including dividends from insurance companies to policyholders;

etc (refers to : Article 4 Undang-Undang No 7 Tahun 2021)

Value Added Tax (VAT)

The Value Added Tax (VAT) according to Pohan (2016: 22) states that VAT is a tax imposed on any increase in the value of goods or services in their circulation from producers to consumers.

Thus, Value Added Tax is a tax that must be collected when there is a delivery of Taxable Goods or Services. The principle of VAT classification in Indonesia adheres to the Negative List Principle. So that basically all exchanges of Taxable Goods or Services in Indonesia are VAT objects, except for several types of Taxable Goods and or Services that are excluded and regulated in the Law.

The following are a number of Goods and or Services that are exempted according to Article 4(A) Paragraphs 2 and 3 of Undang Undang No. 7 of 2021 related to Harmonisasi Peraturan Perpajakan:

Types of Goods that are not subject to VAT:

Food and beverages served in hotels, restaurants, restaurants, stalls, and the like, including food and beverages whether consumed on the spot or not, including food and beverages delivered by catering or catering service businesses, which are the object of local taxes and local retributions in accordance with the provisions of laws and regulations in the field of local taxes and local retributions; and
Money, gold bars for the benefit of the state foreign exchange reserves, and securities.

Types of services that are not subject to VAT :

Religious services;
Catering services;
Arts and entertainment services, covering all types of services performed by arts and entertainment workers which are the object of regional taxes and regional retributions in accordance with the provisions of laws and regulations in the field of regional taxes and regional retributions;
Hospitality services, covering room rental services and/or room rental services in hotels which are the object of local taxes and local retribution in accordance with the provisions of laws and regulations in the field of local taxes and local retribution;
Services provided by the government in the context of running the government in general, covering all types of services in connection with service activities that can only be carried out by the government in accordance with its authority based on laws and regulations and such services cannot be provided by other forms of business;
Services for the provision of parking spaces, covering services for the provision or organization of parking spaces carried out by parking space owners or parking space management entrepreneurs to parking space users which are the object of regional taxes and regional retributions in accordance with the provisions of laws and regulations in the field of regional taxes and regional retributions.

Food service or catering, covering all activities of food and beverage service which is the object of local tax and local retribution in accordance with the provisions of laws and regulations in the field of local tax and local retribution.

Benefits of Tax Planning

The comprehensive benefits of tax planning are as follows:

Reducing Tax Burden
The main objective of tax planning is to reduce the tax burden for individuals and corporations by utilizing various legitimate tax strategies and policies, taxpayers can identify opportunities either through reported income reduction, qualified expense deductions, or even the utilization of specific tax incentives.
Enhancing Financial Efficiency
Through tax planning, taxpayers can manage their finances more efficiently. By considering the tax consequences in financial decision-making, such as investments, asset management, or business planning, taxpayers can maximize income and optimize their financial structure.

Improving Cash Flow Management
Good tax planning can help taxpayers effectively manage their cash flow. By planning tax payments effectively, taxpayers can avoid late payments, penalties, or interest on unpaid tax obligations. This allows taxpayers to use their cash more efficiently, invest funds earlier, or allocate them for business development.

Compliance with Tax Laws
Furthermore, effective tax planning ensures compliance with the applicable tax laws. It helps to avoid legal issues, tax disputes, or reputation risks that may arise from tax violations.

Enhancing Investor and Creditor Confidence
Effective tax planning can also enhance the trust of investors and creditors in companies or individuals who demonstrate good tax compliance through discipline and transparency in tax management. This can improve your reputation in the eyes of investors and creditors, thereby increasing trust in the management of an entity.

Requirements for Conducting Tax Planning

The requirements for tax planning are as follows:

Compliance with Tax Regulations
Every action in tax planning must adhere to the applicable tax laws in the respective country. This includes understanding and following the regulations, provisions, and policies issued by the local tax authorities.
Business Reasonableness
Business transactions should be conducted based on sound trade practices and using arm's length prices, which refers to the price level between independent buyers and sellers.

Transparency and Disclosure
Effective tax planning requires honesty, transparency, and timely disclosure. All relevant and necessary information must be provided to the tax authorities accurately and on time.

Supported by Valid Evidence
Adequate supporting evidence is crucial in tax planning. Formal and material truth of a company's financial transaction can be demonstrated through contracts with third parties, purchase orders from customers, proof of delivery of goods/services, invoices, tax invoices as evidence of billing, and proper accounting records.

Substantial Business or Investment Purpose
Tax planning should have a substantial business or investment purpose behind it. This means that tax actions taken must be related to legitimate business activities or rational investment decisions.

Steps in Tax Planning

In general, there are five strategies that companies usually use in doing tax planning:

Analyzing Existing Information
When planning various tax provisions, every taxpayer is required to read and understand the basic rules and any changes in tax regulations, including General Tax Provisions, Income Tax, Value Added Tax (VAT), and other taxes, comprehensively to formulate significant plans for tax planning.
Preparing One or More Major Tax Plans
Tax planning is a complex tax reduction method. Therefore, taxpayers engaged in tax planning should have a clear vision and mission to ensure the long-term implications of tax planning efforts.

Evaluating Tax Planning
Tax planning is a small part of the overall strategic planning of a company. Therefore, an evaluation should be conducted to assess the impact of tax planning on tax burdens, gross profit differences, and non-tax expenditures under various planning alternatives.

Identifying Weaknesses and Rectifying Tax Plans
To maintain the objectives of tax planning, taxpayers need to periodically evaluate their plans in light of changing regulations and make necessary adjustments to achieve their goals.

Updating Tax Plans
Corporate taxpayers must master the applicable tax regulations to avoid tax sanctions in the form of administrative sanctions, such as fines, interest, or increases, to criminal sanctions.

How We Can Help

Considering that taxation is a fairly complex and risky matter and has a close connection to Accounting, Putranto Alliance can assist any taxpayer in need of accounting or taxation services through the services we provide to continue working together synergistically in every tax treatment in Indonesia.

FAQs

What is Tax Planning?

Tax Planning is the process of organizing the taxpayer’s business or group of taxpayers in such a way that their tax liabilities, including income tax and other taxes, are minimized, to the extent allowed by the applicable laws and regulations.

What is the difference between tax preparation and tax planning?

Tax Preparation is a mechanism where taxpayers refer to the historical approach. In this case, taxpayers must wait until all tax obligations are completed to be carried out and then be prepared if there is a possibility of refunding or paying the remaining tax owed.

Meanwhile, tax planning uses a current and future approach. Everything that is done by taxpayers related to tax treatment in tax planning has gone through a process of strategizing in order to make the nominal tax to be paid more efficient.

Who can engage in tax planning?

When to do Tax Planning?

Each taxpayer can divide it into 3 periods of fulfilling tax obligations, including:

Before the Tax Obligation is carried out
During this period, taxpayers can formulate all long-term plans along with tax treatment plans in order to measure how effective the strategy will be.
When performing tax obligations
Furthermore, each taxpayer can ensure that every Tax Planning strategy that has been formulated runs well and if there are changes in terms of tax regulations, taxpayers must measure what the implications are, whether material or immaterial.
After fulfilling Tax Obligations
Finally, in this phase taxpayers can see the potential activities after fulfilling tax obligations. Is there an audit until the Tax Assessment Letter appears? Is there potential to make tax restitution and compensation? And so on to again make the value of tax payable more efficient.

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