TAX UPDATES SEPTEMBER 2018 THE USE OF BIG DATA IN TAX COLLECTION I N S I D E THIS I S S U E

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1 SEPTEMBER 2018 J A K A R T A O F F IC E M e n a r a I m p e r iu m, 2 7 th F l o o r J l. H R R a s u n a S a id K a v. 1, P h F x c o n t a c p b t a x a n d. c o m S U R A BAYA O F F IC E G r a h a B u k o p i n, 9 th F lo o r J l. P a n g li ma S u d ir man , P h F x s u r a b a y p b t a x a n d. c o m I N S I D E THIS I S S U E 1. The Use of Big Data in Tax Collection (1-5) 2. Do You Know (6-7) THE USE OF BIG DATA IN TAX COLLECTION An Understanding of Big Data In the world of digital economy, massive amounts of data and information are available over the internet. This massive amount of digital data is a starting point to the creation of Big Data Technology. According to SearchDataManagement.com, Big Data is an evolving term that describes any voluminous amount of structured, semistructured and un-structured data, which can potentially be used in uncovering various types of information. In a wider sense of the term, Big Data is usually interrelated with 3Vs; the extreme volume of data, the wide variety of data, and the velocity at which data must be processed. The term itself cannot be defined by a specific number although it deals with a large amount of data, as data can be in different volumes; namely in terabytes, petabytes, and even exabytes, in some cases, for data that have been collected over a certain period of time. This massive amount of digital data is a starting point to the creation of Big Data Technology. These large volumes of data can come from an innumerable amount of different sources; from business sales records; to the collected results from experiments; or real-time sensors involved in the internet-of-things.

2 Page 2 (continued from page 1) The extreme volume of data itself can also be categorized into raw or reprocessed data, for which software tools are applied. Once categorized, the wide variety of data can be further categorized into a wide variety of file types, which include structured data, unstructured data or streaming data. Furthermore, big data may also be in various forms that involve multiple or simultaneous data sources, which may not be collated as one. Data analytics projects will then ingest, correlate and analyze these large amounts of data sources, and finally render the results in response to an overall query, depending on the velocity at which the data must be processed. Application of Big Data Around the World Nowadays, enterprises use big data technology in developing and running businesses; such is the case with Facebook, Google, Yahoo!, IBM, Alibaba and other large-scale social media companies. Government institutions around the world have been using big data technology to provide better services to the public, such as the US National Weather Service, public transportation. Big Data Technology has also helped governments in increasing tax compliance, as well as in preventing tax evasion and tax fraud. Big Data Technology has also helped governments in increasing tax compliance, as well as in preventing tax evasion and tax fraud. A few years ago, the US Internal Revenue Service implemented big data in order to stop tax frauds. One of the strategies is using data mining in social media contents to search for information as evidence against people spending more than what they have reported in their income tax returns. Social media data mining and other strategies for big data are believed to be able to cut hundreds of billions of dollars in lost taxes each year. The United Kingdom had also recently used Big Data technology in the creation of tax policies. Big Data Application in Indonesia According to a survey regarding internet usage in Indonesia, conducted by the Association of Indonesian Internet Service Providers (Asosiasi Penyelenggara Jasa Internet Indonesia (APJII)), it revealed that the total internet users in Indonesia by the end of 2017 reached million people out of 262 million of the Indonesian population, which means that almost 55% of the Indonesian population use the internet. It also showed a significant increase from the total users in 2016, which amounted to million people, an increase of 8%. Amongst the total internet users, 49.52% of them are from the ages years old and 29.55% are from the ages years old. In terms of the type of internet usage, 87.13% of these internet users use it for social media, while 32.19% of them use it for online shopping, 17.04% for banking transactions, and 16.83% for online sales.

3 Page 3 (continued from page 2) Meanwhile, from data gathered from the DGT system, it shows that the total registered Taxpayers as of now is at million, in which million Taxpayers have the obligation to file their Income Tax Returns. Until March 2018, the number of Taxpayers that have filed their income tax returns was revealed to only be million or 59.98% of the total number of Taxpayers. The survey above tells us that there is a big potential for the DGT to increase tax collection. Thus, the Directorate General of Taxes has been following suit since 2015, in order to use big data technology in increasing tax compliance, stopping tax fraud and tax evasion, to accelerate the increase in tax collection. The DGT has also identified some of the Tax Avoidance/Tax Evasion/Tax Fraud schemes, which may be tackled in using Big Data. They are as follows: Falsified Tax Invoice Transactions Un-reported assets transfers Under-valued property/assets transactions Under-reported Income/Continuous Losses Under-reported Production Output Big Transaction with unidentified ID Abusive action of mining exploration license Under-reported Income from shares/stock transactions, Under-pricing commodity items In implementing big data technology, the DGT is able to create taxpayer profiling, gather information on the relationships between business groups and individuals, relationships among individuals, gather information regarding taxpayer transactions that might not have been reported to the DGT. The DGT has issued several regulations to enforce several institutions, association, companies to submit their data and information to the DGT, as data sources for the DGT in the implementation of BIG DATA. Sources of Data available to the DGT are for the use of BIG DATA Technology: 1. The DGT s Internal data Internal data can be obtained by information of Income Tax Returns filed, Tax Amnesty returns, and correspondences with Taxpayers.

4 Page 4 (continued from page 3) 2. Third Party Data from Government institutions, Organizations and Associations, which is regulated by PMK no 228/PMK.03/2017 regarding the Details of Types of Data and Information, with the submission procedures of tax-related data and information. PMK 228 stipulates that Government institutions, organizations, associations and other types of entities are required to submit data and tax-related information to the DGT. This includes, but not limited to, Government Ministries, all Local Government agencies (Pemda), Directorates under Ministry of Finance, Government-owned Companies (BUMN), Social Insurance Administration Body (BPJS), Bank Indonesia (BI), Indonesia s Investment Coordinating Board (BKPM), Fiscal Policy Board (BKF), the Association of Indonesian Appraisers (MAPPI), the Public Accountant Institute of Indonesia (IAPI), the Association of the Indonesian Automotive Industry (GAIKINDO), Center of Statistics Board (BPS), the National Agency of Drug and Food Control of the Republic Indonesia (BPOM), 23 Banks as credit card issuers, seven (7) cellular network providers, fixed line telephone providers. From the data and information submitted, the DGT is supposedly able to obtain data/information regarding the Taxpayers distribution network, Stocks/Shares Ownership, Shareholder networks, Shareholder family relations, import and export information, luxury car owners, auction winners, and real property owners. 3. Automatic Exchange of Financial Account Information Indonesia has committed to implement the automatic exchange of financial account information according to a Common Reporting Standard (CRS), which was prepared by the OECD and G20. Indonesia s commitment was established in the signing of the Multilateral Competent Authority Agreement of the AEOI, held on June 3, 2015, in which Indonesia agreed to start the AEOI in. In line with the commitment of Indonesia in its participation in the AEOI, there is a need to revise the bank secrecy law in Indonesia, in order for the DGT to be able to exchange financial information. Thus, the Government issued Law no 9 of 2017, regarding the Stipulation of Government Regulations in lieu of Law no 1 of 2017, with regards to Financial Transaction Access for Tax Purposes, as law. This Law is to provide access to the DGT in order to obtain financial information for tax purposes from financial institutions, including banks, capital markets, insurance companies, and other financial institutions. These entities are required to submit financial information of their customers /clients accounts on a periodic basis. The data and information received from these financial institutions may be used by DGT to analyze the pattern and profile of taxpayers.

5 Page 5 (continued from page 4) 4. Social Media such as Twitter, Facebook, Instagram. The DGT utilizes public internet data from websites such as Facebook. Taxpayers should consider that their posts may impact the probability of an audit. The DGT currently operates several storage media with a total capacity of 500 TB, used exclusively by Hadoop (300 TB) and Teradata (200 TB). As a result of the enforcement of the regulation above, the DGT currently administers the following approximate data: 11.3 Billion records of Tax Return data (total) 10 billion records (1.8 B record increase every year) of VAT invoice data 5 million records of Tax Letter (SKP/STP) data (total) 255 million records of National Identity Card data 51 million records of Customs data 35 million records of Credit Card data (per year) 30.5 million records of other banking data In the future, the DGT will integrate all of the existing applications into an integrated Information System, which will serve as a tax intelligence center. Tax services will be made wider and easier so that data collection activities can be performed more effectively. A system of predictive analytics based on risk assessment and self-service business intelligence will continue to be developed, which in turn is expected to increase tax revenue. EXPECTED OUTCOME Based on the presentation made by the DGT, which stated that by using Big Data Technology, it is believed that time used to process the massive amounts of data collected is 100 times faster than the old system. The processed data and information leads to Tax Audits, as there are 30,000 taxpayers indicated to be practicing tax avoidance/tax fraud. The potential tax collection is at approximately IDR2.9 Trillion. Tax services will be made wider and easier so that data collection activities can be performed more effectively.

6 Page 6 DO YOU KNOW? 1. Taxpayers that are indicated to issue and/or use illegitimate Tax invoices will be suspended. Sanctions for suspended Taxpayers will not only have their Electronic Certificate temporarily revoked, but will now have their position as a Taxable Enterprise revoked. This means that the Taxpayer will not be able to issue Tax Invoices or credit their VAT Input. (Regulation of the Director General of Taxes No. PER-16/PJ./2018dated June 25, 2018). 2. Taxpayers have 30 days to submit a clarification in response to the Suspension status given to them, as long as there has been no preliminary criminal audit conducted yet. TA participant Taxpayers, who have been issued a Statement Letter, shall be removed from the Suspect List. Should it be discovered that a Taxpayer who has participated in the TA, as of January 1, 2016, is later indicated to have issued an illegitimate Tax Invoice, then the Taxpayer concerned will be suspended. (Circular Letter of the Director General of Taxes No. SE-17/PJ./2018 dated August 30, 2018). 3. Starting from October 10, 2018, the import of goods through e-commerce with an accumulated total exceeding USD75 per day shall be imposed a Customs duty charge at a flat rate of 7.5% for all types of goods. In the previous regulation, importers may import goods several times per day in large amounts as long as each of the goods is worth a maximum of USD100, and was therefore waived from import tax or duties. (Minister of Finance Regulation No. 112/PMK.04/2018 dated September 6, 2018). 4. MSME Taxpayers no longer use Statement of Dispensation (SKB) for transactions in the form of Article 23 Income Tax withholding objects. Starting August 26, 2018, MSME Taxpayers, who are Sellers or Service Providers, will still be subject to withholding tax Article 23 Income Tax but will only be at a rate of 0.5%, provided that they show a Statement Letter as a Taxpayer subject to Income Tax based on Government Regulation 23 of Previously, MSME Taxpayers used Statement of Dispensation to be exempt from Article 23 Income Tax withholding by the counterparty; and deposited their own Final Income Taxes. (See Ministry of Finance Regulation No. 99/PMK.03/2018 dated August 24, 2018).

7 Page 7 Do You Know (continued from page 6) 5. The issuance of Tax Identification Numbers (TIN) for limited liability companies no longer need to be requested to the tax office. The government has integrated the establishment approval services of the Directorate General of General Law Administration and the registration for TIN of the Directorate General of Taxes. As a result, Taxpayers may electronically register for their respective TIN with the help of a registered Notary in the Directorate General of General Law Administration and by accessing the Legal Identity Administration System (Sistem Administrasi Badan Hukum (SABH)) through the website or via Electronic Integrated Business Licensing; or through Online Single Submission (OSS), which was issued by the OSS institute, accessible through (See Director General Regulation No. PER-20/PJ./2018 dated September 10, DISCLAIMER The information contained in this document is intended only to be a guide. It must not be relied on in, or applied to, specific situation without previously seeking proper professional advice. Even if all reasonable care has been taken in its preparation, PB Taxand do not accept any liability for any errors that it may contain or lack of update before being published, whether caused by negligence or otherwise, or for any losses, however caused, or sustained by any person. Description of, or reference or access to, other publication within publication do not imply endorsement of them.