ANALYSIS OF INTEREST EXPENSE IMPOSITION IN RELATION TO DEBT-TO-EQUITY RATIO POLICY IN INDONESIA

Abstract

In 2015, PT X suffered from a negative-equity-resulting loss, while its 2015 Annual Tax Return indicated an overpayment. Based on the Law on General Provisions and Tax Procedures, tax audits will be conducted against annual tax returns in an overpayment position. In 2017, PT X received the Notification (SPHP) of its 2015 audit results. Among the corrected aspects contained in the SPHP was interest expense. In making corrections on the interest expense, auditors used the principle permit issued by the Coordinating Board for Capital Investment (BKPM) as a reference. This principle permit contains debt and equity estimation. The legal basis for the use of a principle permit is Article 18 Paragraph (1) of the Law on Income Tax. However, by 2015, the said provision did not come with any implementation regulation yet, making it inappropriate for the auditors to use the BKPM- issued principle permit as a reference. This research used a qualitative approach with qualitative data analysis techniques. The results reveal that the use of the BKPM-issued principle permit for determining the size of interest expense correction was not appropriate in 2015. Since Article 18 Paragraph (1) of the Law of Income Tax did not have any implementation regulation yet in 2015, it should not have been used as a basis for making fiscal corrections by that year. Corrections on the debt-to-equity ratio can be made in some alternative manners, for example, conversing debt into equity, settling debt, taking out non- interest bearing loans or revaluating fixed assets.