Indonesian Supreme Court Deals Blow to Tax Office’s Bakrie Probe

The Jakarta Globe, May 26, 2010

A Kaltim Prima Coal mine in East Kalimantan. The tax office says it will continue its probe of the PT Bumi Resources subsidiary. (Supplied Photo)

The Bakrie group has won another round in its tax dispute against the government, with the Supreme Court upholding a ruling that the tax office did not have sufficient evidence to upgrade its probe of a subsidiary to a full investigation.

However, an official at the Finance Ministry’s Directorate General of Taxation vowed to continue the probe of PT Kaltim Prima Coal, a unit of PT Bumi Resources, the country’s largest coal producer.

In a statement on its Web site, the Supreme Court said a three-member panel of judges presided over by Judge Imam Soebechi on Monday had rejected a request for a review of the tax tribunal’s decision in December that the tax office had insufficient evidence to upgrade its probe of KPC, which was alleged to have underpaid its taxes by Rp 1.5 trillion ($160.5 million).

The court has yet to explain the grounds for the ruling.

KPC lawyer Aji Wijaya said the ruling backed the company’s contention that the tax office lacked sufficient evidence.

“Therefore, the tax directorate’s investigation, which is based on their initial evidence, must be stopped,” Aji said.

“This is a good news for all stakeholders of KPC, including investors.”

Shares in Bumi Resources soared on the news, gaining 20 percent on Wednesday.

Elevating an initial tax probe into a full-fledged investigation gives the tax office greater freedom to seize company documents and, recommend a travel ban for company executives and recommend that assets be frozen or seized.

Pontas Pane, interim director of intelligence and investigation at the Directorate General of Taxation, said the ruling would not stop the probe into KPC, and said the Supreme Court’s ruling was based largely on procedures, and was not a judgment of the evidence against KPC.

“It was about a letter to elevate the case into an investigation based on preliminary proof,” Pontas said.

The tax office has been investigating Bumi Resources, KPC and PT Arutmin Indonesia, another Bumi subsidiary, since March 2009 for allegedly evading a combined Rp 2.1 trillion in taxes owed in the 2007 tax year.

The court’s ruling comes as former Finance Minister Sri Mulyani Indrawati departed the country on Wednesday for Washington for a new job at the World Bank.

Sri Mulyani and the Bakrie group’s Aburizal Bakrie have frequently sparred in recent years over the group’s interests. Before she left, she warned that the country’s reforms were in danger of being “hijacked” by vested interests, and said Aburizal, one of Indonesia’s most powerful men, wanted her removed from her post because of her commitment to reforms, according to a newspaper report published on Wednesday.

It was the strongest statement yet from Sri Mulyani following weeks of speculation, which she denied in the report, that her departure was the result of a political deal between President Susilo Bambang Yudhoyono and Aburizal, chairman of the Golkar Party, a member of the government’s coalition.

Eddy OS Hariej, criminal law expert from Gadjah Mada University, said on Wednesday the court’s ruling would not necessarily prevent the tax office from continuing its investigation.

“The investigation process is to find the truth on an alleged criminal act. So the criminal court is the only one to decide whether the proof used is valid or not. At the current stage, the Supreme Court decision has no effect on the investigation,” he said.

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