The Role of Equalization in Tax Audits and Need for Documentation

Equalization is a fundamental data instrument that is always listed in the Borrowing Book List during tax audits in Indonesia. Auditors use it to assess the fairness of a taxpayer’s filing by matching the financial statements (general ledger) with the Tax Return (SPT).

The equalization process goes beyond simple number comparison; it links commercial transactions with their tax treatment, such as matching PPh 21 with salary expense accounts, PPh 23 with service costs, and PPh 26 with foreign payments that may also attract VAT. The results serve as the initial trigger to spot potential non‑compliance, for example, a gap between reported service expenses and withheld tax. Nevertheless, many gaps arise from timing differences or account reclassifications rather than actual tax errors.

Taxpayers must provide complete supporting documents—contracts, invoices, withholding certificates, and reconciliation memos—to enable auditors to accept explanations objectively. Adequate documentation transforms equalization into a discussion tool rather than a definitive correction, improving the efficiency and fairness of the audit process.