Indonesia Tax Court Reform: Authority Over Tax Court Moves from Finance Ministry to Supreme Court

Indonesia’s Constitutional Court recently issued a decision on the reform of the Tax Court that will see authority over the organizational development, administration and financing of the Tax Court transferred from the Ministry of Finance to the Supreme Court.

Constitutional Court decision No. 26/PUU-XXI/2023 was issued on May 3, 2023, but was only made public on May 25, 2023. The decision was issued in response to a petition from three Applicants, consisting of an advocate and two academics, for the Constitutional Court to examine Article 5 paragraph (2) of Law No. 14 of 2002 regarding the Tax Court (“Tax Court Law”).

In particular, the Applicants asked the Constitutional Court to examine Article 5 paragraph (2) of the Tax Court Law against Article 1 paragraph (3), Article 24 paragraph (1), Article 24 paragraph (4) and Article 28D paragraph (1) of the 1945 Constitution.

Reasons for Application

1. The Applicants stated that Article 5 paragraph (2) of the Tax Court Law was inconsistent, inappropriate, or contrary to the principles of the rule of law and the independence of the judiciary.
2. The Applicants said there was dualism in the development of the Tax Court, as Article 5 paragraph (2) of the Tax Court Law placed the Tax Court, part of the judiciary, under the executive branch, i.e., the Ministry of Finance, the institution overseeing the organizational development, administration and financing of the Tax Court. The Applicants said the Ministry of Finance, given the power it wielded over the Tax Court, could potentially interfere with the independence of the court and the implementation of the duties and powers of the court. They said having the phrase “Ministry of Finance” in Article 5 paragraph (2) of the Tax Court Law violated the principle of independent judicial power and legal certainty, as guaranteed in Article 1 paragraph (3), Article 24 paragraph (1) and paragraph (2), and Article 28D paragraph (1) of the 1945 Constitution.
3. Last, the Applicants requested the Constitutional Court to amend Article 5 paragraph (2) of the Tax Court Law to read as follows:

“Organizational, administrative and financial development is carried out by the Supreme Court.”

Legal Considerations

Based on the above reasons, the Constitutional Court made the following legal decisions:

1. The Constitutional Court postulated a dualism in the authority at the Tax Court. The panel of judges said a fundamental element of the rule of law was the existence of an independent judiciary, without which a sense of justice would suffer and the potential for abuse of power would increase. They said judicial power was an independent power, which means it must be free from the interference of the government and the status of judges guaranteed by law.
2. The panel of judges further said putting the development of judicial bodies under non-integrated institutions could affect the independence of the judiciary, or at least potentially result in other institutions controlling the implementation of the duties and powers of the Tax Court, even if only related to organization, administration and finance. As a result, the Tax Court would not be able to carry out its duties and authorities independently.
3. The Constitutional Court judges said a judiciary that is potentially influenced by the government or executive power can increase the opportunities for abuse of power or arbitrariness in government, including the neglect of human rights and the constitutional rights of citizens by the authorities.

Constitutional Court Decision

The Constitutional Court accepted and granted part of the application by the Applicants requesting the examination of Article 5 paragraph (2) of the Tax Court Law.

The court declared that Article 5 paragraph (2) of the Tax Court Law is contrary to the 1945 Constitution. The court further said there was a dualism of authority in the development of the Tax Court that was not in line with the ideals of creating an independent judiciary through an integrated system. The Constitutional Court viewed that the development of the Tax Court should be carried out in an integrated manner within one institution that has the function of judicial power and is separate from executive interference.

Thus, the Constitutional Court declared that the organizational, administrative and financial development of the Tax Court must be transferred from the Ministry of Finance to the Supreme Court, with the transfer to be completed by no later than December 31, 2026, so that the entire administration of the Tax Court is under the Supreme Court.

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