Indonesia Taxation 2024: Updated Policies and Tax Rates

Summary: Indonesia’s updated 2024 taxation framework emphasizes structured tax policies for individuals and corporations, supported by the official website www.pajak.go.id. Individual taxpayers must calculate their taxable income by deducting specified allowances, such as IDR 54 million for individuals and additional allowances for dependents. Tax rates range from 5% to 30% based on income brackets. For businesses, the corporate income tax (CIT) rate is 22%, with defined deadlines for filings and payments. Small enterprises with annual turnovers under IDR 50 billion benefit from reduced tax rates. VAT remains at 11%, with luxury goods subject to 12% VAT under the LGST framework. Corporate deductions cover ordinary business expenses, start-up costs, and specific charitable contributions. Additionally, interest deductions are allowed under certain limitations, and net operating losses can be carried forward for up to five years. Tax filings can be submitted electronically or on paper, with e-Filing gaining traction. Payments to foreign affiliates are subject to withholding tax, ensuring compliance with international tax norms. The Indonesian taxation system reflects a balanced approach to fostering economic growth while maintaining fiscal responsibility. 

Individual income tax

An Individual Taxpayer refers to an individual working as an employee or conducting independent personal service. Any Individual Taxpayer has an obligation to calculate their Tax Payable by the end of the year to find out whether they have outstanding tax or need to ask for a tax refund.

All types of income received from within or from outside the nation which adds wealth to any individual tax payer has to be reported by the tax payer either to pay the required income tax or get the refunds in case of excess payment.

What is an income and how to calculate?

First, calculate all income received or earned in one Tax Year and exclude any income that is not a Tax Object. The deductions allowed are as given below:

• Rp54,000,000 (fifty-four million Rupiah) for an Individual Taxpayer;
• Additional Rp4,500,000 (four million five hundred thousand Rupiah) for a married Taxpayer;
• Additional Rp54,000,000 (fifty-four million Rupiah) for a wife provided that she files a joint Tax Return as referred to in Article 8 paragraph (1);
• Additional Rp4,500,000 (four million five hundred thousand Rupiah) for every dependent family member related by blood and by marriage in a direct lineage, and adopted child, at maximum 3 (three) dependents for each family.
• The Non-Taxable Income will be determined based on the facts and circumstances at the beginning of the Tax Year or the beginning of the section of the Tax Year. From this calculation, we get Taxable Income as the result.

My observation

The deductions shown above indicate enormous help given to the individual by the government in fulfilling their tax liabilities.

What is the income tax rate?

The Income Tax rate for an Individual Taxpayer is as follows:

(One Rp equals – 0.0053 Indian rupee or US $ 0.000062)

After calculating Taxable Income and Tax Payable, the next step is to deduct tax credit from Taxable Income. Tax credit is any tax that has been paid, whether through a withholding mechanism by another party, or by self-deposit. The result of this deduction is Accrued Income Tax Payable.

Let me actually give one example given in the tax website for clarification. It is clearly understood that only an expert will finalize your tax return or your employer if he is eligible to analyse it.

Example of calculation to individual income- tax

All imaginary situations.

Based on the concept above, let’s now take a look at the following illustration:

Mr. Leopold, an office worker with a part-time business of repairing electronic devices, has a wife and a two-year-old child. His total net income this year is Rp300,000,000, of which Rp200,000,000 comes from his job at Hydra Corp. and the remaining Rp100,000,000 comes from his electronic device repair business. A Rp15,550,000 income tax has been withheld from his Hydra Corp. income, and for that, he has received a withholding tax receipt (form 1721). His wife, Mrs. Jemma, is a housewife earning no income.

Additional information

Interesting additional information

The Accrued Tax Payable does not necessarily have a positive balance, as in Mr. Leopold’s case for example. The balance could be zero if tax payment or tax credit equals Tax Payable, or even negative if tax payment or tax credit exceeds Tax Payable.

If the Accrued Tax Payable has a positive balance, the Taxpayer will have to settle the underpaid Tax Payable.

On the other hand, in the case of overpayment or negative balance, the Taxpayer can choose to either have it set off against the next Tax Period or submit a written request for refund of the tax overpayment to the Tax Office (KPP) with which they are registered.

Corporate income tax

A Tax Return is a document used by a Taxpayer to report their tax calculations and/or payments, Taxable Objects and/or Non-Taxable Objects, and/or assets and liabilities in accordance with the tax laws and regulations.

An Annual Income Tax Return is an Income Tax Return for a Tax Year or section of the Tax Year, which includes Annual Individual Tax Return and Annual Corporate Tax Return.

Filling out an income tax return

Any business entity registered as a Taxpayer, indicated by having a Taxpayer Identification Number (TIN), has an obligation to file Annual Income Tax Return.

As a Taxpayer, you should fill out, sign, and file your Tax Return correctly, completely, and clearly in Indonesian using Latin alphabet, Arabic numerals, and Rupiah currency to your Tax Office (KPP) or via other channels designated by the Directorate General of Taxes.

Any Corporate Taxpayer permitted to maintain their bookkeeping in English and US Dollar currency is required to file their Corporate Income Tax Return and annexes in Indonesian, except for financial statements, and US Dollar currency.

What are the “types and formats of the income tax return”

The following are the types of Annual Income Tax Return:

Annual Income Tax Return for a Tax Year; and

Annual Income Tax Return for a section of the Tax Year.

The following are the formats of Tax Return:

Electronic document; or

Paper form (hardcopy).

Tax returns can be filed at 1. Service Desk (TPT) where the Taxpayer is registered; or2. Other places providing tax services run by the Tax Office or the Tax Services, Dissemination, and Consultation Office (KP2KP) where the Taxpayer is registered.

What about electronic filing, the current trend among all industries?

e-Filing, by uploading csv file from e-SPT application to the Directorate General of Taxes website (www.pajak.go.id) or an Application Service Provider [List of Application Service Providers];

e-Form, by completing file downloaded from the djponline webpage and re-uploading it. Once delivered, an Electronic Receipt will be sent to the registered email.

Various irregularities like non signing, non – attaching of financial statements, or after receipt of information from tax departments about various objections may invite fine or other activities from tax authorities.

Interestingly various documents required along with the tax returns do get a mention in the website.

Documents required for filing with tax returns. (quoted directly)

Financial Statements;

Calculations of Gross Income & Payment (for Micro, Small, and Medium Enterprises Taxpayers);

Reports of Debt-to-Equity Ratio & Foreign Private Debt (for Corporate Taxpayers with debt)

Overviews of Master Document & Local Document (for Taxpayers conducting transactions with associated enterprises);

Country by Country Report;

List of entertainment expenses (if any);

List of promotion expenses (if any);

For Oil and/or Gas Taxpayers: Annual Report of State Revenue from Upstream Oil and/or Gas Activities.

For Permanent Establishments:

Article 26(4) Tax Payment Slip (SSP);

Notice of Investment;

Consolidated/Combined Financial Statements.

What about Value added tax rate and has it been updated in view of the vast changes in tax regimes around the world?

The general feeling is that in the evolving dynamics of Indonesia’s economy, the government’s decision to maintain the effective Value Added Tax (VAT) rate at 11% through Finance Ministry Regulation (PMK) No. 131/2024 reflects a mature and measured policy approach.

For luxury goods already subject to Luxury Goods Sales Tax (LGST), the application of an effective 12% VAT rate reflects an equitable fiscal policy.

More information about corporate tax

Corporate income tax (CIT) rate is 22%

CIT return due date – The end of the fourth month after the book year-end.

CIT Final payment due date – any time prior to the submission of the CIT return.

CIT estimated payment due dates – 15th day of the month following the month when the income was received.

Withholding tax rates (%): Resident:10 or exempted (individuals), exempted (corporate)* / 10**, 15, or 20 / 15; Non-resident: 20 / 20 / 20.

What are the deductions for corporates?

• In general, expenses incurred in the ordinary course of business (to obtain, collect, and maintain taxable income) are deductible, subject to the requirements for documentary support.
• Depreciation methods include both straight line and declining balance methods.

Organisational and start-up expenses: The costs of incorporation and expansion of the capital of an enterprise are claimed in full in the year in which the expenditure is incurred or are amortised using either the declining-balance or straight-line method at the above rates.

Costs incurred before the commencement of commercial operations with a useful life of longer than one year are capitalised and amortised using either the declining-balance or straight-line method at the above rates.

Interest expense

Interest incurred in the ordinary course of business is deductible with certain limitation as long as the related loan is used for business purposes. The acceptable methods to limit the interest deduction are those commonly used internationally, such as percentage of earnings before interest, taxes, depreciation, and amortisation (EBITDA), debt-to-equity ratio, or other methods.

Charitable contributions include donations for national disasters, education facilities, sport development, and social infrastructures, with certain conditions, may be deductible in the fiscal year when the donations are provided.

Net operating losses can be carried forward for a maximum period of five years while carrying back is not permitted.

What about payments to foreign affiliates?

WHT is applied as a final tax on the recipient for payments of royalties, interest, and service fees to foreign non-resident companies. Excessive and non-arm’s-length payments to related parties are disallowed as deductions. The tax law denies deductions for all payments from a branch to its head office for royalties, interest, and services provided by the head office (exceptions apply for loans between bank branches and their head offices).

Taxation for small enterprises

Small enterprises (i.e. corporate taxpayers with an annual turnover of not more than 50 billion rupiah [IDR]) are entitled to a 50% tax discount of the standard rate, which is imposed proportionally on taxable income on the part of gross turnover up to IDR 4.8 billion. Certain enterprises with gross turnover of not more than IDR 4.8 billion are subject to final income tax at 0.5% of turnover.

No provincial or local taxes exist in Indonesia.

Resident corporations are taxed on global income.

Conclusion

My earlier article in taxguru.in on “Indonesia – A glimpse into its taxation system” also covered various other aspects in detail which was published on 17^th August 2023. This can also be referred for more details. Indonesia with increasing economic activities has been making the necessary changes to meet the needs of its population and evolve as an economic power. It is also extending enormous cooperation with India to achieve its goals.

Reference

1) Website of its official taxation department

https://www.pajak.go.id/en/index-tax

1. Website of PWC worldwide tax summaries

https://taxsummaries.pwc.com/indonesia/corporate/taxes-on-corporate-income

Lebih lanjut di: https://www.pajak.go.id/index.php/en/income-tax-calculation-mechanism-individual

Disclaimer: The above article is a collection of my ideas on Indonesian taxation which may change with time and only a taxation expert legally approved from Indonesia can guide one properly. Kindly be guided accordingly.