Another unfortunate tax dispute - CGS CIMB
■ PGAS is facing yet another tax dispute due to differing understandings of the gas distribution value added tax billing mechanism.
■ If the tax office sends a tax underpayment bill, PGAS would have to provision the amount, at the very least, as it lost the case in the Supreme Court.
■ Downgrade to Reduce from Hold with unchanged TP of Rp1,300. The good news has been mostly priced in, while there could be more downside risks.
Value added tax dispute In a 30 Dec 2020 disclosure letter, PGAS said it lost a tax dispute case against the tax office on 18 Dec 2020, and may potentially need to pay Rp3.06tr in underpaid tax, as well as a penalty (likely the same amount as the tax underpayment). The tax dispute case arose from differing understandings of the gas distribution value added tax (PPn) billing mechanism, on the back of the change in gas distribution sales price from single currency (in Rp/m3) to dual currency (in US$/mmbtu and Rp/m3) in 2012-13. PGAS previously won the case in the tax court in 2019. Additionally, in another similar case (worth Rp3.8tr) in 2014-17, the tax office cancelled the tax underpayment billing as PGAS filed an objection. In fact, the gas distribution business is free of PPn.
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