In legal terminology, there is a principle called Ultimum Remedium, which means that criminal law should be used as a last resort in enforcing the law. This principle is also adopted in Indonesian Tax Law. Criminal sanctions in taxation should be used as a last resort (ultimum remedium), meaning that the focus of tax law enforcement is not prioritized towards physical punishment of taxpayers or tax collectors. Tax criminal sanctions can actually be omitted or reduced by acknowledgement accompanied by payment/settlement of tax debt and its fines (Farouq, 2018).
The ultimum remedium principle is used as a last resort in taxation. It is actually related to the goal of tax collection, which is to get the money from taxpayers for the state, not to “imprison” taxpayers or tax collectors. Notwithstanding, criminal threats like Gijzeling are not meant to take the place of unpaid tax debts incurred by taxpayers or tax collectors; rather, they are meant to serve as a reminder that unpaid tax debts and fines must be paid right away.
One implementation of the ultimum remedium principle in taxation is hostage-taking. Article 1 Number 21 of Law Number 19 of 2000 concerning Tax Collection with Coercion (“the PPSP Law“) defines hostage-taking as the temporary confinement of the freedom of the taxpayer by placing them in a certain place. The explanation of Article 33 Paragraph (1) of the PPSP Law mentions that hostage-taking is a last resort (ultimum remedium) in tax collection, after warnings, reprimands, Distress Warrant, Execution Orders of Seizure (SPMP) and seizures are done but the taxpayer has not yet paid the tax debt and collection costs, after correction requests, objections, requests for reduction or cancellation of incorrect SKPKB decisions have been given, and appeals and lawsuits have been decided by the Tax Court (Gunadi, 2016).
In implementing hostage-taking, the principles of selectivity and caution must be considered as mandated by Article 33 of the PPSP Law, where only taxpayers who meet two criteria can be taken hostage, namely those who have a tax debt of at least Rp100,000,000 and are suspected of having bad faith in paying the tax debt, and it can only be carried out based on a hostage-taking order issued by the official after obtaining written permission from the Minister or Governor of the First-Level Regional Government.
There are six criteria indicating that a taxpayer’s good faith is in doubt, as stipulated in Article 3 Paragraph (1) letter d of Director General of Taxes Decree No. KEP-218/PJ/2003. First, the taxpayer does not respond to requests to settle tax debts. Second, the taxpayer does not explain or is unwilling to settle tax debts either in full or in installments. Third, the taxpayer is unwilling to surrender their assets to settle tax debts. Fourth, the taxpayer intends to leave Indonesia permanently. Fifth, the taxpayer transfers their owned or controlled assets in order to stop or reduce the company’s activities or work in Indonesia. Sixth, the taxpayer intends to dissolve their business entity or merge, split, or transfer their owned or controlled company, or make other changes in the company’s structure.
For legal certainty, the letter of seizure order must include at least the taxpayer’s name, the reason for the seizure, permission for the seizure, the length of the seizure, and the place of the seizure. A seizure cannot be carried out if the taxpayer is in the middle of worship, attending an official hearing, or participating in an election.
The period of hostage-taking can last for a maximum of six months and can be extended for another six months. Even though the taxpayer has been seized, this does not result in the cancellation of tax debt and the cessation of tax collection because the tax debt will be canceled only when it has been fully paid or expired (Article 35 of the Tax Collection Law).
Article 14 paragraph (1) of KEP-218/PJ/2003 lists four conditions that must be met before the taxpayer can be freed from being held hostage. First, the tax debt and collection costs have been fully paid. Second, the time limit specified in the Letter of Seizure Order has expired. Third, based on a court decision that has final legal force, or fourth, based on specific consideration by the Minister of Finance.
In summary, the Tax Authority’s hostage-taking is not intended to “imprison” the taxpayer. This is only taken as a last resort (ultimum remedium) when the taxpayer fails to pay their tax debt and administrative sanctions, which have an impact on state revenue as one of the objectives of tax collection. More broadly, the purpose of seizure is to encourage taxpayer compliance and awareness so that voluntary tax compliance can be achieved.