Statute of Limitation to Claim Payment under Manpower Law

The Constitutional Court has added yet another complication to employer-employee relations in Indonesia. In Decision No. 100/PUU-X/2012 dated September 19, 2013 (the “Decision”), the Court revoked Article 96 of the Manpower Law (Law No. 13 of 2003) on the basis that it was inconsistent with the Constitution. Article 96 provided that claims with respect to payments arising from employment must be made no later than two years from the date the right to payment arose.

The Constitutional Court held that Article 96 of the Manpower Law contradicts Article 28D of the Constitution, which provides that every person is entitled to employment, to receive compensation, and to be treated fairly and reasonably in matters of employment. The Court held that such rights cannot be taken away by any person or by any law or regulation, and Article 96 was deemed to take away the rights of employees.

The petition for revocation of Article 96 was submitted by a former employee of a security company. Accordingly, it is ostensible that the petition was driven by that individual’s (or a group of individuals’) specific need, rather than the interests of employees in general under the Constitution. In our view, the Court failed to take this into account. According to the Decision, the petitioner was still in the process of resolving his dispute with the employer. We think the Court should have rejected the petition and directed the petitioner to continue pursuing his rights under the Manpower Law.

The Court also failed to consider the arguments presented by the Indonesian Parliament and the Association of Indonesian Entrepreneurs (APINDO), both of whom argued that for legal certainty it was reasonable to have a statute of limitation on claims for payment. Statutes of limitation for employment related claims are found in Government Regulation No. 8 of 1981 and in the Indonesian Civil Code. The Court did not address either of those statutes of limitation in its Decision.

It is interesting to note that one of the nine judges on the panel dissented from the Decision. The dissenting judge expressly agreed that there needs to be a statute of limitation in the Manpower Law and stated that removing Article 96 will create uncertainty for employers. Unfortunately, the dissenting opinion has no legal force.

A major problem that arises is whether the Decision applies retroactively, i.e., whether it allows current or former employees to claim damages based on events that occurred more than two years prior to the issuance of the Decision. Again, the Court failed to address this, and if the Decision does apply retroactively, the number of potential claims is almost limitless.

The Decision raises particular concern for employers when employment ends. The employer will need to ensure that departing employees waive their right to future claims, because the employer can no longer rely on Article 96 to protect them over the long term. We are reviewing the Decision further, and, in spite of the problems presented, we can continue assisting employers in ensuring that their rights and interests arepreserved when dealing with termination of employment (especially termination that took place before the Decision was issued).

September 25, 2013

Coastal and Small Island Reclamation

Presidential Regulation No. 122 of 2012 on Reclamation of Coastal Areas and Small Islands (“Regulation”) requires reclamation projects (dredging, draining, and landfill) to comply with permitting requirements and to account for the technical, environmental, and socio-economic impacts of the activity.

Most importantly, the Regulation does not apply to reclamation in (i) certain aspects of major ports and harbors or territorial waters of special terminals; (ii) mining, oil & gas, and geothermal areas; or (iii) restoration or improvement of forest areas. Reclamation is prohibited altogether in conservation areas and sea lanes.


Parties planning a reclamation project must submit a Reclamation Plan and obtain a Location Permit and an Implementation Permit. Detailed permitting procedures are contained in an implementing regulation, Minister of Marine Affairs and Fisheries (MMAF) Reg. No. 17/PERMEN-KP/2013. The authority to approve a plan and issue permits is relative to the scale of the project: Projects within a single Regency/City or 4 miles from the coast are under local jurisdiction; cross-Regency projects and projects within the 12 mile territorial waters are under the Governor; and cross-Province projects and projects in National Strategic Areas (KSN) or fishing harbors that are managed by the Central Government are under the authority of the MMAF. All reclamation projects must be aligned with regional- and island-level Coastal and Small Island Zoning Plans (RZWP-3-K) and Spatial Plans.

Implementation must commence within one year from the date the Implementation Permit is issued. The implementation permit may be revoked if it is not in accordance with the reclamation plan or the environmental permit is revoked.


Technical, environmental, and socioeconomic factors must be observed throughout implementation. Technical factors include hydrological, hydro-oceanographic, bathymetric, topographical, geomorphological, and geotechnical (physical/mechanical) aspects. Environmental factors include marine water quality, groundwater quality, and air quality, as well as impacts on coastal ecosystems (mangrove, seagrass, coral reef) and aquatic and terrestrial biota. Socioeconomic factors include demographic factors (population size and density, income and education levels, sources of livelihood, culture/religion, health), public access to coastal/marine areas and resources, and the potential need to relocate or compensate affected communities and facilities/infrastructure. Community aspects will be elaborated in a regulation of the Ministry of Marine Affairs and Fisheries (MMAF).The Regulation took effect on December 5, 2012.

(Updated) August 27, 2013

Transnational Electricity Licensing

Indonesia has committed to a number of cross-border power projects with Singapore and Malaysia as part of the ASEAN Power Grid (“APG”), which was devised to support economic growth in Southeast Asia by facilitating intra-regional sale of electricity. A recent regulation from the Ministry of Energy and Mineral Resources (“MEMR”), No. 26 of 2012 on Application Procedures for Licenses for Transnational Sale and Purchase of Electricity and Interconnection of Power Grids (“MEMR 26/2012”), stipulates the licensing requirements for entities that will be involved in the APG and similar projects.

 BACKGROUND: Electricity Regulation in Indonesia

The first regulation on electricity was Law No. 15 of 1985, which granted monopoly power to the state-owned
electricity company, PLN. In 2009, Law No. 30 of 2009 (“Electricity Law”) allowed private sector participation
in electric power supply and supporting businesses. Subsequent regulations, including GR No. 14 of 2012 on
Electric Power Supply Business (“GR 14/2012”) and GR No. 42 of 2012 on Transnational Sale and Purchase of
Electric Power (“GR 42/2012”), elaborated the role of the private sector and paved the way for regional

At the regional level, Indonesia is involved in several programs under the ASEAN Interconnection Master Plan
Study, including the APG, which was ratified in GR No. 77 of 2008 on Ratification of Memorandum of
Understanding on the ASEAN Power Grid.

Based on the above, Indonesia has prepared the legal basis for PLN and/or Independent Power Plant
Companies (“IPPs”) to engage in transnational sale, purchase, and interconnection of electricity and electric
power grids.


Electricity providers desiring to engage in transnational sale or purchase of electric power must obtain the
general electric utility business license (Electric Power Supply Business License for Public Purpose – Izin Usaha
Penyedia Tenaga Listrik (“IUPTL”)) and a Transnational Sale of Electric Power License or Transnational
Purchase of Electric Power License from MEMR.

In order to sell electricity outside the country, the licensee must show that (i) the demand for electric power
in the local and surrounding area has been fulfilled; (ii) the sale price does not contain subsidies; and (iii) the
sale does not impair the quality or reliability of the local electric power supply.

To purchase electricity from abroad, the licensee must show that (i) the demand for electric power in the local
and surrounding area has not been fulfilled; (ii) the purchase will support the fulfillment of demand in the
local area; (iii) the purchase does not injure the national interest with respect to sovereignty, security, or
economic development; (iv) the purpose is to increase the quality and reliability of the local electric power
supply; (v) the purchase does not disregard the development of domestic electric power supply capacity; and(vi) the purchase does not cause dependency on overseas electric power procurement. The purchase price
should consider the economic value of the electricity bought, and the purchaser must obtain MEMR approval
of the price, as stated in GR 42/2012.

MEMR 26/2012 contains detailed application requirements for IUPTL holders to obtain licenses for
Transnational Sale, Transnational Purchase, or Transnational Interconnection from the Director General of
Electricity. Each type of license is subject to different application requirements. All of the licenses will be valid
for 5 years and can be extended. The license should be amended if there is any change in the amount of
electric power that will be bought or sold. Sale and Purchase license holders must submit implementation
reports to MEMR every 6 months.

Licenses for Transnational Sale and for Transnational Purchase also function as licenses for Transnational
Interconnection; therefore, power companies that already have a license to sell or to purchase need not also
obtain an Interconnection license.

July 24, 2013

Microfinance Law Finally Enacted

Law No. 1 of 2013, dated January 8, 2013, on Microfinance Institutions (“Microfinance Law”) has been enacted after more than two years of deliberation in the House of Representatives. The Microfinance Law forms the legal basis for the establishment of Microfinance Institutions (“MFIs”) to increase access
to credit, promote productivity and economic empowerment, and support the financial and social welfare of poor/low‐income people.

MFIs are defined as financial institutions that are not exclusively motivated by profit and that support community development by offering loans or financing to micro‐enterprise, limited consumer banking (savings deposit management), and business development consultation services. Lending, financing, and
deposit management can be based on conventional or sharia banking principles.

MFIs can be established as cooperatives or as limited liability companies (PTs) and must meet applicable capitalization and licensing requirements, both of which will be regulated by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan – OJK). An MFI may be owned by Indonesian citizens,
village/sub‐district Government‐owned Enterprises (Badan Usaha Milik Desa/Kelurahan –BUMDes/BUMK1), local governments, or cooperatives. Foreign ownership, direct or indirect, is prohibited. Limitations on share ownership and participation apply to MFIs in the form of PT: at least
60% of shares must be owned by the local government or BUMDes/BUMK, while the remaining shares can be owned by Indonesian citizens and/or cooperatives. Indonesian citizens can hold shares up to 20% of shares.

MFIs are prohibited from receiving deposits in the form of giro and participating in payment flow, conducting foreign exchange, engaging in insurance business, acting as guarantor, or making loans to other MFIs, other than to assist with liquidity problems of MFIs in the same regency/city. MFIs and local
government agencies can form deposit insurance organizations to protect depositors’ funds. Further elaboration on permitted business activities will be issued under OJK regulation, and elaboration of deposit insurance requirements will be issued in a Government Regulation.

MFI operations are limited to one village/sub‐district, district, or regency/city and will be adjusted to the MFI’s business scale as set out in Government Regulation. In order to expand business outside the regency/municipality where the MFI is domiciled, the MFI must be converted into a Bank, meeting all relevant requirements determined by the OJK.

1 Locally owned enterprises such as BUMDes are authorized in Minister of Home Affairs Reg. No. 39 of 2010 on Village‐owned Enterprise, Law No. 32 of 2004 on Regional Government, and Government Regulation No. 72 of 2005 on Villages. M‐00357
2 MFIs are obliged to maintain records in accordance with accepted financial accounting standards and to submit financial reports to OJK every four months, along with other reports as required by regulation. The Microfinance Law also contains provisions on consumer protection, confidentiality, and information sharing among MFIs.

MFIs must obtain prior approval from the OJK before merging or consolidating with other MFIs. If an MFI encounters liquidity or solvency problems, the OJK may order it to conduct necessary corporate actions, including selling property or assets, changing the board of commissioners or directors, raising capital, transferring liability, and merging or consolidating with another MFI, among others. OJK has the authority to revoke an MFI’s business license and dissolve the entity if such action does not resolve the liquidity or solvency problem. Revocation and liquidation will be further regulated by the OJK.

The Microfinance Law stipulates administrative and criminal sanctions for MFIs that do not fulfill their obligations. Administrative sanctions include fine, warning letter, suspension of business activities, dismissal of directors or managers, and revocation of the business license. Criminal sanctions include imprisonment for one to three years and criminal fine of up to Rp.1 billion.

Institutions engaging in microfinance business prior to the issuance of the Microfinance Law may continue to operate for up to one year after the Microfinance Law comes into effect, during which time they must obtain a new business license and OJK permit. The Microfinance Law will enter into force on January 8, 2015—two years after the date of enactment—during which time the necessary implementing regulations will be promulgated.

MOLHR Regulation Revises Curator/Administrator Fees in Bankruptcy

The Minister of Law and Human Rights (MOLHR) issued Regulation No. 1 of 2013 on Guidelines for Determination of Fees for Curators and Administrators (Regulation) to stipulate new fees for Curators and Administrators under Law No. 37 of 2004 on Bankruptcy and Postponement of Debt Repayment (Bankruptcy Law), revoking the fees listed in MOLHR Decree No. M.09 HT.05.10 of 1998.
Under the Bankruptcy Law, bankruptcy actions may be initiated either by a creditor submitting a bankruptcy petition to the Commercial Court or by a debtor submitting a petition for postponement of debt settlement obligations, also to the Commercial Court.
If a creditor-initiated bankruptcy ends in reconciliation or debt settlement, the debtor’s assets will be liquidated by a Curator appointed by the court. The Curator’s fees are calculated regressively based on the value of the bankruptcy assets. The higher the value, the lower the percentage paid to the Curator.

  • Reconciliation/Amicable Settlement

Bankruptcy Assets Value
(excluding debts) Fee Percentage Example:
Assets = IDR 600 billion
Up to IDR 50 billion 5% 2,500,000,000
IDR 50 billion – IDR 250 billion 3% 6,000,000,000
IDR 250 billion – IDR 500 billion 2% 5,000,000,000
Over IDR 500 billion 1% 1,000,000,000 Total fees: IDR 14,500,000,000

  • Debt Settlement Mechanism

Bankruptcy Assets Value
(excluding debts) Fee Percentage Example:
Assets = IDR 600 billion
Up to IDR 50 billion 8% 4,000,000,000
IDR 50 billion – IDR 250 billion 6% 12,000,000,000
IDR 250 billion – IDR 500 billion 4% 10,000,000,000
Over IDR 500 billion 2% 2,000,000,000 Total fees: IDR 28,000,000,000

The Curator may also receive fees amounting to 2.5% of the sale of the debtor’s assets that are in the possession of creditors, or third parties, execution of which was deferred while the bankruptcy action was pending.
Fees for temporary Curators depend on the outcome of the proceedings: If the court grants the bankruptcy petition, the fee will be determined in an initial creditors’ meeting; if the court denies the petition, the amount will be determined by the court (0.5% under the former regulation).

If a creditor’s petition for bankruptcy is rejected in cassation or reconsideration by the Supreme Court, the court will determine the amount of fees the Curator should receive based an evaluation of the duties performed by the Curator (2.0% under the former regulation). Under the Regulation, the applicant is obliged to pay the Curator’s fees. However, this provision is inconsistent with Article 17(2)-(3) the Bankruptcy Law, which stipulates that the court may order the applicant and/or the debtor to pay the Curator’s fees.

In debtor-initiated actions, assets are liquidated by an Administrator, who will receive 10% of the value of the debts, if the action is settled by reconciliation, and 15% of the value if settled without reconciliation. Previously, the fee was calculated based on the value of the debtor’s assets.

In both creditor- and debtor-initiated bankruptcy actions, the Curator/Administrator may request fees in addition to those described above, during a meeting of the creditors.
The Regulation does not apply when Balai Harta Peninggalan (BHP) acts as the Curator or Administrator. If BHP acts as the Curator, its fees will be regulated under the prevailing laws and regulations on Non-Tax State Revenue.

April 8, 2013,

New Bank Indonesia Regulation on Multiple Licensing Policy

Bank Indonesia (“BI”) has issued Regulation No. 14/26/PBI/2012 of 2012 dated December 27, 2012 on Business Activities and Office Networks Based on Bank Core Capital (“BI Reg. 14/26/2012” or “Regulation”). The Regulation contains several of the six policies announced by BI during a Bankers’ Dinner held in late November 2012.
1 BI Reg. 14/26/2012 regulates permitted business activities, obligations for the amount of credit a bank must grant as productive financing, and establishment/expansion of branch office networks—all based on the amount of Core Capital.
2 The Regulation entered into force on January 2, 2013.

Business Activities Based on Core Capital Classification
The Regulation classifies commercial banks based on Core Capital and stipulates permitted activities for each classification or “BUKU” (Bank Umum berdasarkan Kegiatan Usaha—Commercial Bank Based on Business Activities).

BUKU 1: Core Capital less than Rp 1 Trillion

  • Basic Rupiah intermediary functions for deposit and distribution, trade finance, limited agency/cooperation, limited electronic banking and payment systems, temporary capital participation for credit based or other services, and limited foreign exchange
  • Branches only within Indonesia
  • No capital participation in other financial institutions
  • Must distribute 55% of total credit/financing to productive business

BUKU 2: Core Capital of Rp 1 – 5 Trillion

  • Same business activities as BUKU 1, but with higher transaction value
  • Branches only within Indonesia
  • Capital participation in other Indonesian financial institutions, up to 15% of capital
  • Must distribute 60% of total credit/financing to productive business

BUKU 3: Core Capital Rp5 – 30 Trillion

  • All types of business activities, in Rupiah and foreign currency
  • Branches and representative offices in Indonesia and Asia region
  • Capital participation in Indonesian and other Asian financial institutions, up to 25% of capital
  • Must distribute 65% of total credit/financing to productive business

1 At the Dinner, BI announced 6 new policies: (1) classification of banks and permitted activities based on core capital; (2) branch expansion to correlate with core capital; (3) required loan to value ratio for Sharia banks; (4) provision on trustees; (5) single presence policy; and (6) obligation to provide credit allocation to SME business.
2 Core Capital refers to: paid‐up capital, disclosed reserve, and innovative capital instruments. For Foreign Banks, Core Capital refers to capital calculated based on Capital Equivalency Maintained Assets (CEMA). See BI Reg. 14/18/PBI/2012 regarding Commercial Bank Minimum Provision of Capital. M‐00338

BUKU 4: Core Capital atleast Rp30 Trillion

  • All types of business activities, in Rupiah and foreign currency
  • Worldwide branches and representative offices
  • Worldwide capital participation in other financial institutions, up to 35% of capital
  • Must distribute 70% of total credit/financing to productive business

Branch Office Networks and Regional Expansion
To establish branch and representative offices, banks must have a composite rating 3 of 1 – 3 and fulfill Core Capital allocation requirements.
There are two exemptions to the Core Capital requirements:

  • Banks that wish to open functional offices to provide credit to Small and Medium Enterprises (SMEs) do not have to meet Core Capital allocation requirements.
  • Banks of any size may open branch offices without meeting Core Capital allocation requirements on the condition that they distribute at least 20% of credit/financing to micro‐businesses.

In conjunction with capital allocation requirements, BI will determine: (a) regional zones, numbered 1 – 6 based on density of banks and level of economic development; (b) density coefficients for each zone; and (c) the investment cost of establishing a branch network for each BUKU classification. The zone system will be used to define obligations for banks to open branch or representative offices in lower density areas. The determination of zones will be stipulated in a BI Circular Letter.
Timeline for Compliance
Banks whose business activities are not in accordance with BUKU classifications must either adjust their business activities or increase their Core Capital. Action plans reflecting adjustment measures must be submitted to BI by the end of March 2013. After BI approves the action plan, the banks must revise their business plans (Rencana Bisnis Bank – RBB) before the end of June 2013.
Banks must submit action plans for branch network establishment/expansion, taking into account the Core Capital allocation requirements, and revise their RBB accordingly before the end of June 2013. Previously approved branch establishment/expansion that can be completed before the 2013 RBB is revised will be exempted from Core Capital requirements.

Bank Indonesia Issues Regulation on Fund Transfers

Bank Indonesia Regulation No. 14/23/PBI/2012 dated December 26, 2012 (“PBI”) on Fund Transfers  has been issued to implement Law No. 3 of 2011 on Conduct of Fund Transfers (“Law No. 3/2011”).  This PBI repeals and replaces PBI No. 8/28/PBI/2006 on Money Transfer Business Activities.

The PBI regulates the requirements of financial institutions and other entities engaged in fund transfer (“Fund Transfer Operators”) with respect to security systems, capital, integrity of management, risk management, and infrastructure readiness, and regulates in detail the rules for execution of fund transfer orders, such as responsibility in times of force majeure, errors in fund transfers, and refund procedures.

Fund Transfer Permits
To receive a permit and qualify as a Fund Transfer Operator, applicants must be classified as banks or non-bank legal entities that meet the criteria for, and are participants in, Bank Indonesia’s Real Time Gross Settlement (“BI-RTGS”) system or National Clearing System (“SKNBI”), or Card-Based Payment Organizers that provide fund transfer services.

Permits may not be transferred to third parties. Reports to Bank Indonesia must be made in the event of merger, consolidation, separation, or other corporate action that may result in permit transfer. Bank Indonesia will then decide based on the report, which party, if any, is authorized to acquire the permit.

Fund Transfer Operators that have secured a fund transfer permit based on the previous regulation (PBI 8/28/PBI/2006) must reapply for and obtain a new permit within one year of the effective date of this PBI. Under Law No. 3/2011, parties that process fund transfers without having the proper permit will be subject to up to 3 years imprisonment or IDR 3 billion in criminal fines.

Procedures for Sending and Receiving Overseas Fund Transfers
Overseas fund transfers may only be conducted by parties that have approval from their  corresponding local authorities and under written agreement with Indonesian Fund Transfer Operators. The agreement must at minimum contain a commitment to reciprocity between the parties; the rights and obligations of each party; a dispute settlement mechanism; and mechanisms to determine foreign exchange rates, fees, and final settlement. For fund transfer involving overseas non-bank entities, Bank Indonesia may implement a cap on the amount of funds that can be transferred.

Transfer Procedures
A Fund Transfer Operator that has accepted a transfer order from a customer remains responsible for executing the order until the funds are accepted by the final beneficiary Operator. The sending Operator remains responsible in the event of force majeure, failure of electronic or non-electronic M-00332 system infrastructure, failure of clearing system or fund transfer system, or other events to be determined by Bank Indonesia. In such cases, sending Operators are obligated to inform the sender of the conditions; otherwise, they may be required to pay for services, interest, or compensation to the party originating the transfer.

In the event of force majeure, and the sender cancels the transfer order, the Fund Transfer Operator must return the funds by credit to the sender’s account or provide a written notice for cash withdrawal if the sender does not have an account with the sending Operator. The sender is entitled to refund of  service fees, interest, or compensation from the Fund Transfer Operator should the Operator fail to provide a refund within 1 working day of receipt of the cancellation request.

In the event of error leading to funds being transferred in the wrong amount, or delivered to the wrong beneficiary, the errant Operator must correct the error within 1 working day after acknowledgement of the error by cancelling or changing the order and/or publishing new orders to the rightful beneficiary without waiting for a refund from the mistaken beneficiary.

Fund Transfer Operators are entitled to charge reasonable transfer fees, but they must inform senders of the fees by, at minimum, posting an announcement in relevant office locations.

Fund Transfers Intended to Be Received in Cash
Fund transfers may be disbursed in cash by sending a notice on the date of the transfer order to the beneficiary that they are entitled to receive funds in cash. Should the transferred funds not be collected after a series of notices, the recipient Operator must transfer the funds back to the originator. If the originator, after a series of notices and after a period of time, fails to collect the funds, the funds will be surrendered to the Probate Court closest to or in the same area of the originating Operator.

Fund Transfer Operators that violate any of the provisions of the PBI may be subject to administrative  sanctions in the form of warnings, fines, suspension of transfer activities, and fund transfer permit  revocation. Bank Indonesia can also temporarily suspend part of or all fund transfer activities and revoke licenses of non-bank entities.

Ministry of Finance Regulation on Tax Objections

The right of a taxpayer to object to a tax assessment is regulated under Articles 25, 26, 26A, 27 and 27A of the, Law on Taxation, General Provisions and Procedures (Law No. 6 of 1983, as amended). To implement these provisions, the Ministry of Finance issued Regulation No. 9/PMK.03/2013 on Procedure for Submitting and Resolving Objections, which revoked and replaced the previous regulation on the subject (Reg. No. 194/2007), as of March 1, 2013.

 Overview of Objections
All taxpayers are entitled to file an Objection Letter to the Director General of Taxation (“DGT”) objecting to: (i) Underpaid Tax Assessment; (ii) Additional Underpaid Tax Assessment; (iii) Overpaid Tax Assessment; (iv) Nil Tax Assessment; or (v) withholding or collection of tax by a third party.

Taxpayers may only object to: (i) the contents of a tax assessment, including losses to the taxpayer, (ii) the amount of tax assessed; and/or (iii) the contents and/or amount of withholding or collection by a third party. No other matters will be considered.

 The taxpayer is entitled to obtain information from the DGT pertaining to the imposition of tax, calculation of loss, and withholding/collection of tax prior to submitting the Objection Letter.

 Submitting on Objection
The Objection Letter must be submitted in the Indonesian language to the Tax Office where the taxpayer or the taxable entrepreneur is registered within three months from the date of assessment, deduction, or collection, unless the taxpayer can prove the delay is due to circumstances beyond their control. The Objection Letter and supporting evidence can be submitted by (i) personal delivery; (ii) registered mail; (iii) courier; or (iv) e-Filing.

 The Objection Letter should state the amount of tax payable, the amount of tax withheld or collected, or the amount of alleged loss based on the taxpayer’s calculation, along with the basis for the calculation. A separate Objection Letter is required for each assessment, withholding, or collection to which the taxpayer objects.

Note: for Tax Year 2007 and earlier, filing an Objection will not postpone payment or collection of underpaid taxes stated in the Tax Assessment. For Tax Year 2008 and later, the taxpayer must settle the amount of tax due and payable prior to submitting the Objection Letter, at least in the amount conceded by the taxpayer in an audit or verification result closing conference. Payment of the disputed amount will be postponed until one month after the Decree of Objection.

 Resolving the Objection
Within twelve months from the date an Objection Letter is filed, the DGT must render a Decree of Objection,which may approve the Objection in whole or in part, reject the Objection, or increase the amount of tax payable. If the DGT does not render a Decree within twelve months, the Letter of Objection will be deemed granted by operation of law.

In order to resolve the Objection, the DGT is authorized to: (i) obtain taxpayer books, records, data and information; (ii) collect information or evidence from third parties (e.g., bank, public accountant, notary, tax consultant, administration office); (iii) survey the location of the taxpayer, or other places as needed; (iv) summon the taxpayer; and (v) investigate any other data and information relevant to resolving the Objection. If the taxpayer does not fulfill part or all of the DGT’s request for records or information, the Decree of Objection will be rendered in accordance with available data.

Before rendering a Decree of Objection, the DGT will issue a Notice to Appear, along with the results of the examination and a form response letter. If the taxpayer does not attend, the Objection will be resolved in the taxpayer’s absence.

 In the event that an Objection is filed simultaneously with a request for Mutual Agreement Procedure (“MAP”) under a Double Taxation Treaty, but Mutual Agreement has not yet been reached, the DGT will render the Decree of Objection based on an examination of the assessment filed with the MAP proceedings. If Mutual Agreement has already been reached when the Decree is issued, the DGT will consider the findings of the MAP in rendering the Decree.

 Penalties and Fines
In the event that an Objection is rejected or approved only in part, the taxpayer will be subject to an administrative fine amounting to 50% of the total tax payable based on the Decree of Objection minus any tax that was paid before the Objection was submitted. Similar sanctions will be imposed if the Decree increases the amount of tax payable.

The 50% fine will not be imposed if: (i) the taxpayer revokes the Objection; (ii) the Objection is not considered due to nonfulfillment of filing requirements; or (iii) the taxpayer appeals the Decree to the Tax Court.

Objection Letters submitted before the regulation came into effect but for which a Decree of Objection was not yet issued will be settled based on the new provisions.

April 8, 2013

Oil and Gas: Indonesia Ratifies ASEAN Petroleum Security Agreement 2009

In January 2013, Indonesia ratified the 2009 ASEAN Petroleum Security Agreement (“APSA 2009”) through Presidential Regulation No. 7 of 2013. APSA 2009 is the successor agreement to the 1986 ASEAN Petroleumn  Security Agreement, which was enacted to provide collective assistance among member states in cases of critical petroleum shortage.

APSA 2009 will not enter into force until 30 days after the 10th ratification or acceptance instrument is submitted to ASEAN. All ASEAN members executed the agreement in 2009, but to date, only 7 members have ratified—Laos, Cambodia, and the Philippines have not submitted any instrument to ASEAN. The agreement stipulates a number of short, medium, and long-term measures member states are expected to take to enhance energy security and cooperation within the region. The most significant is a commitment to collectively supply up to 10% of a member’s petroleum needs in times of shortfall—on a voluntary, commercial basis. “Petroleum” as used in the agreement refers to “crude oils, products and natural gas in its natural condition.” Member states are not obligated to divert their petroleum supplies to help other members if doing so would cause hardship. Indonesia is currently a net importer of oil.

  • Strategic Mechanisms to Enhance Petroleum Security

Member states are expected to implement short, medium, and long-term strategies to enhance petroleum security, minimize exposure during emergency situations, and mitigate the impacts of critical petroleum shortages.

Short-term Measures for Member States in Distress

An ASEAN member state is “in Distress” when it gives notice to the ASEAN Council on Petroleum (ASCOPE) that it has faced a critical petroleum shortage (defined as a 10% shortfall of the Normal Domestic Requirement) for 30 consecutive days because of natural disaster, explosion of facilities, or war. Member states in Distress are expected to impose immediate limitations on energy consumption, which may include demand restraint, switching to alternative fuels, surge protection, and information sharing with other member states.

If demand limitations fail, the member state in Distress may request assistance under Coordinated Emergency Response Measures (“CERM”), in which the other member states will endeavor to provide, in aggregate, 10% of the Distressed state’s Normal Domestic Requirement on a voluntary, commercial basis. CERM is not a donation. It is a transactional diversion of member states’ petroleum supplies to states in need. Taking unfair advantage of the Distressed state’s vulnerability is prohibited.

Following the activation of CERM, the ASCOPE Secretariat will supervise the situation to determine whether the magnitude of the emergency has changed. Any ASEAN member state that gives assistance under CERM may at any time terminate its assistance if such assistance causes hardship for the state giving assistance.

Medium and Long term Measures

Member states are also expected to implement:

  • Cooperation on regional energy policy, trans-ASEAN gas pipeline (TAGP), ASEAN power grid (APG), regional energy policy and planning (REPP), coal, renewable energy, energy efficiency, and conservation
  • Exploration for new petroleum resources through voluntary joint ventures with other member states
  • Energy diversification (APG, TAGP, fuel switching); joint research, development, and demonstration of renewable energy projects; energy efficiency; and new energy technologies
  • Diversification of supply to reduce dependency on single sources
  • Deregulation and liberalization of oil and gas markets
  • Oil stockpiling
  • International Cooperation

To enhance ASEAN’s energy and petroleum security, APSA 2009 stipulates international cooperation with ASEAN dialogue partners and other relevant international organizations.
February 14, 2013

Government Stipulates Details for Spatial Planning Maps

Government Regulation No. 8 of 2013 on Details for Spatial Planning Maps dated January 2, 2013 (“GR 8/2013”) was issued to replace Government Regulation No. 10 of 2000, which stipulates procedures for spatial planning, as required by Law No. 26 of 2007 on Spatial Planning.

Spatial planning is one of the processes through which local, provincial, and central governments work together to stipu;late land use policy. Every five years, detailed plans and maps of existing and future land forms (e.g., coastlines, waterways, infrastructure, settlements, and urban areas) and land uses (e.g., forest area boundaries; concession boundaries for logging, mining, and agriculture; and economic development zones) are negotiated among the different levels and departments of government, resulting in spatial plans for a variety of areas and purposes, including, among others:

  • Regencies/Cities
  • Provinces
  • Islands/archipelagos
  • National, provincial, and regency/municipal strategic areas (kawasan strategis)
  • Urban areas
  • Rural areas

Spatial planning maps are an important product of the spatial planning process, as they are used by government agencies in their decisions to approve or deny applications for licenses impacting land use (e.g., location permits, mining licenses, plantation licenses, environmental licenses, etc.). GR 8/2013 stipulates the contents and specifications required for various kinds of maps, including spatial structure maps and spatial pattern maps—both types of which may be issued at the national, provincial, and regency/city level.

Spatial structure maps depict:

  • Municipal layout
  • Transportation networks
  • Energy grid
  • Telecommunications networks
  • Water resources/supply networks
  • Other infrastructure (required for province and regency/city maps only, may include environmental infrastructure, drinking water systems, waste management systems, evacuation routes, and other infrastructures specific to the area)

Spatial pattern maps depict:

  • Protected areas
  • Cultivation areas

GR 8/2013 also stipulates the level of accuracy and precision required for spatial planning maps, including mapping units and the minimum scale for each type of map at each level of administration. Generally speaking, the smaller the area depicted, the greater the detail that is required; for example rural and urban area base maps must have at least a scale of 1:10,000, while general provincial maps can be 1:250,000. Coastal and marine areas must include bathymetry data, and border areas are to be depicted based on consultation with neighboring provinces/regencies/cities. The Geospatial Information Agency will provide technical guidance and further regulation on the process and requirements, particularly with respect to geometric accuracy.

February 14, 2013