On 26 April 2018, the Constitutional Court of the Republic of Indonesia (Constitutional Court) issued a ruling on a constitutional review of a provision under Law 6 of 1983 on Taxation General Provisions and Procedures, as amended (General Tax Law), which may potentially put an end to an age-long requirement for Tax Attorneys (Kuasa Pajak) to be qualified as Tax Consultants.
In an unexpected move, under Constitutional Court Decision 63/PUU-XV/2017, the Panel of Judges of the Constitutional Court (POJ) ruled that the provision of the General Tax Law in question, Article 32(3a), is “conditionally” contrary to the Republic of Indonesia Constitution of 1945 (Constitution).
Article 32(3a), when read in conjunction with Article 32(3) of the General Tax Law, delegates authority to the Minister of Finance (MoF), to regulate the requirements and implementation of rights and obligations of Tax Attorneys, in the form of an MoF regulation.
Consequently, the validity of MoF Regulation 229/PMK.03/2014 on Requirements and Implementation of Rights and Obligations of Tax Attorneys (MoF 229), which was specifically issued on the basis of Article 32(3a) of the General Tax Law, is now uncertain. It is under this MoF 229 that Tax Attorneys are required to, among others, be qualified Tax Consultants.
Some of the key changes as a result of the issuance of Constitutional Court Decision 63/PUU-XV/2017, are as follows:
- The phrase “implementation of rights and obligations of Tax Attorneys” in Article 32(3a) of the General Tax Law is conditionally contrary to the Constitution and has no legal binding force, to the extent it is interpreted to regulate beyond technicaladministrative matters, and to restrict and/or expand the rights and obligations of citizens.
- The validity of MoF 229 and the requirements to qualify as Tax Attorneys set out therein are now uncertain.
- In line with the elucidation of Article 32(3) of the General Tax Law, therefore, any individual may be appointed as a Tax Attorney to the extent that the relevant individual understands tax matters (although there is no criteria on how to demonstrate such understanding). In other words, Tax Attorneys are no longer limited to Tax Consultants and/or Employees of a Taxpayer qualified to handle tax matters set in MoF 229.
- Separately, provisions of any laws that directly delegate rule-making power to ministers, head of non-ministry government agencies, or officials equal to ministers on substantive matters, as opposed to technical-administrative matters, are unconstitutional.
3.Summary of Constitutional Court Decision 63/PUU-XV/2017
The Applicant in this constitutional review was an advocate who had been denied by a Tax Office the right to provide legal assistance to a Tax Payer, as a Tax Attorney, on the basis that MoF 229 requires Tax Attorneys to be either a Tax Consultant or an Employee of the Tax Payer qualified in handling tax matters, of which the Applicant was neither.
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The Applicant argued that given his other qualifications, including as a Tax Court Attorney, and his knowledge of tax matters, which is the minimum requirement according to the elucidation of Article 32(3) of the General Tax Law, he was therefore authorised to act for and on behalf of a Taxpayer as a Tax Attorney. The relevant Tax Office, however, continued to deny the Applicant from acting as a Tax Attorney, which eventually led to the filing for constitutional review.
3.2.Arguments of the Applicant
The Applicant submitted a constitutional review of Article 32(3a) of the General Tax Law, as the legal basis behind issuance of MoF 229, arguing it grants absolute authority to the MoF to determine requirements and implementation of rights and obligations of a Tax Attorney, which has prejudiced and/or may potentially prejudice the following constitutional rights of the Applicant:
- the right to work and a decent living, under Article 27(2);
- the right to work and receive compensation, under Article 28D(2);
- the right to recognition, guarantee, protection and certainty of law, under Article 28D(1); and
- the right to equality before the law, under Article 27(1).
3.3.Government raises matter of delegation of rule-making power
An interesting development during the proceeding was how the attention of the POJ had unintentionally been redirected from the arguments of the Applicant, to the matter of the delegation of rule-making power under Law 12 of 2011 on Formulation of Laws and Regulations (Law 12/2011), which was originally raised by the Central Government and the House of Representatives (Government).
The Government argued that delegation of rules-making power through Article 32(3a) of the General Tax Law to the MOF is required as laws and regulations higher in the hierarchy only regulate general provisions, whereas technical provisions are delegated to those lower in the hierarchy.
Such delegation, the Government pointed out, is regulated in Attachment II of Law 12/2011, which states that delegation of rule-making power from Laws to ministers, head of nonministry government agencies, or officials equal to ministers, is limited to regulations of a technical-administrative nature.
3.4.Considerations of the POJ
Based on the arguments raised in the proceedings by both the Applicant and the Government, the POJ considered, among others, the following:
- the delegation of rule-making power is essentially carried out in accordance with the prevailing hierarchy, from Laws to Government Regulations or from Government Regulations to Presidential Regulations. Delegation by a Law to a Ministerial Regulation is not appropriate within a Presidential government system, as such delegation skips two forms of higher regulations, namely a Government Regulation and Presidential Regulation;
- the issue of delegation is regulated differently in Attachment II of Law 12/2011, specifically points 198 to 216. Point 211 of Attachment II of Law 12/2011 in particular states that “delegation of rule-making power from Laws to ministers, head of nonministry government agencies, or officials equal to ministers, is limited to regulations of a technical-administrative nature”; and
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(c) the matter of the requirements and implementation of rights and obligations of a Tax Attorney are not technical administrative in nature, but substantive as they relate to the restriction of the rights of an individual in implementing its tax rights and obligations, which should be regulated in a Law. In this case, the Law must clearly regulate requirements for individuals to act as Tax Attorneys, both in terms of administrative and competency requirements.
3.5.Ruling and implication
In its ruling, the POJ partially granted the request of the Applicant by declaring that the phrase “implementation of rights and obligations of Tax Attorneys” in Article 32(3a) of the General Tax Law is conditionally contrary to the Constitution and has no legally binding force, to the extent it is interpreted to regulate beyond technical-administrative matters, and to restrict and/or expand the rights and obligations of citizens.
It is still uncertain whether due to the ruling, MoF 229 would also lose its validity and binding force as a regulation issued based on Article 32(3a) of the General Tax Law. Law 12/2011 only limitedly provides that the validity and binding force of ministerial regulations, which are broadly defined as regulations stipulated by a minister based on substance for administration of certain government matters, is only recognized insofar as they are ordered by higher laws or regulations or formed based on authority.
It is apparent, however, that by way of Article 32(3a) of the General Tax Law, MoF 229 clearly regulates beyond technical-administrative matters, and restricts the rights and obligations of citizens, by limiting the option of Taxpayers to only appoint Tax Consultants and/or their Employees qualified to handle tax matters, as their Tax Attorneys. Based on this alone, MoF 229 should be deemed unconstitutional, and therefore, invalid.
In our view, guidance on as to who qualifies as a Tax Attorney, should be referred to in the General Tax Law itself, which under the elucidation of Article 32(3) may be described as “an individual that understands tax issues and receives a special power of attorney from a Taxpayer, to carry out certain tax obligations of the Taxpayer, whether formal or material, in accordance with prevailing taxation laws and regulations”.
The criteria on how an individual demonstrates its understanding of tax issues, however, would remain open to interpretation until Article 32 of the General Tax Law is amended. From practice, we believe the government would interpret this as a requirement to obtain a tax brevet certificate issued by an accredited institution. ***
We will continue to monitor any developmensts with regard to the matter and issue further relevant updates as more information becomes available.
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 A Tax Court Attorney (Kuasa Hukum di Pengadilan Pajak) is different from a Tax Attorney (Kuasa Pajak). The requirements to become a Tax Court Attorney are set out in MoF Regulation 61/PMK.01/2012 which, among others, includes a Tax Court Attorney License granted by the Chief Justice of the Tax Court.