Taxes Withheld by Third Parties

 

This process normally refers to articles 21, 22 and 23 income tax. If an enterprise is not making a profit from the fiscal perspective, and taxes are withheld by a third party (withholding tax agent), then at the end of the year the enterprise will have tax overpayment. In order to reduce the amount of overpaid tax, the taxpayer may apply to the Directorate General of Taxes for a certificate of exemption from Third-Party Deduction of Taxes (SKB Potput).

Director General of Taxes Regulation No. PER-1/PJ/2011 stipulates that such a Certificate of
Exemption may be granted to:

a. Taxpayers who suffer fiscal losses on account of the fact that the enterprise is newly
established or is still at the investment stage rather than the production stage, or has
experienced force majeure;

b. Has suffered a fiscal loss due to the need to compensate for a loss suffered the previous
year;

c. The monthly instalments paid were greater than the estimated income tax payable;
The taxpayers whose earnings are subject to final income tax. Such application for a
Certificate of Exemption is submitted to the Tax Office where the taxpayer is registered.

A Certificate of Exemption represents a declaration from the Tax Office where the taxpayer is
registered to the effect that the provider of income to the said taxpayer is not required to
withhold income tax in respect thereof. Thus, the issuance of a Certificate of Exemption
means that our income tax will not be withheld automatically from our income.

Not surprisingly, such Certificate of Exemptions are issued sparingly, and may only be given
once. If an enterprise has a lot of customers, each will need to be issued with a Certificate of
Exemption so as to ensure that tax is not withheld from the income accruing to the
enterprise. Ideally, the withholding agent should be provided with the original Certificate of
Exemption. However, that would cause technical difficulties for both the taxpayer and the tax
office. Thus, it is permitted for Certificate of Exemptions to be photocopied and
duplicated.

Director General of Taxes Circular No. SE-11/PJ/2011 provides that a taxpayer may use a
photocopied Certificate of Exemption provided that it is legalized by the issuing tax office.
Without such legalization, the photocopy of Certificate of Exemption will not be accepted,
which would mean that the tax withholding agent would be required to withhold the tax as
normal.

As regards the legalization of a Certificate of Exemption, the tax office is required to provide it within just one day!
However, no mention is made of what happens if hundreds of enterprises seek legalization of their Certificate of
Exemptions at the same time, especially where each request runs to dozens of pages.

 

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