Indonesia:
Harmonized Tax Law Amends Provisions On Income Taxes
21 December 2021
AKSET Law
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Law No. 7 of 2021 dated October 29, 2021 on the Harmonization of
Taxation Regulations (“Law 7/2021“)
amends several existing regulations on the taxation law and
introduces several new regulations. Law 7/2021 amends, among
others, Law No. 7 of 1983 dated December 31, 1983 on Income Taxes
as amended several times, lastly by Law No. 11 of 2020 dated
November 2, 2020 on Job Creation (collectively, the
“Income Tax Law“). This Newsflash
specifically discusses the changes of the Income Tax Law under Law
7/2021.
For your reference, our other Newsflash relating to Law 7/2021,
specifically on the changes of General Taxation Provisions
may be accessed here, and changes to Excise Law may be
accessed here.
Below, we set out the summary of the important provisions of Law
7/2021 relating to the Income Tax Law.
Law 7/2021 introduces a new individual income tax rate whereby
individual taxpayers with a taxable income of more than Rp5 billion
shall be subject to 35% income tax. For ease of reference, below is
the comparison of individual income tax rates governed under the
Income Tax Law and Law 7/2021:
| Rate | The Income Tax Law | Law 7/2021 |
| 5% | Up to Rp50 million | Up to Rp60 million |
| 15% | More than Rp50 million but not exceeding Rp250 million | More than Rp60 million but not exceeding Rp250 million |
| 25% | More than Rp250 million but not exceeding Rp500 million | More than Rp250 million but not exceeding Rp500 million |
| 30% | More than Rp500 million | More than Rp500 million but not exceeding Rp5 billion |
| 35% | N/A | More than Rp5 billion |
Law 7/2021 stipulates that the new provisions on individual income
tax rates above shall be effective from the 2022 fiscal/tax
year.
Under Law 7/2021, a new rate for corporate income tax is also
introduced. Previously, the Income Tax Law provided that the rate
of corporate income tax would be 20%. Starting from the 2022
fiscal/tax year, Law 7/2021 provides that the corporate income tax
rate is set at 22%. This new rate is also applicable to a Permanent
Establishment (in Indonesian, Bentuk Usaha
Tetap or BUT).
Law 7/2021 also reduce the applicable corporate income tax
reduction to be 3% instead of 5% for public companies that meet
certain criteria.
- Income Tax for Benefits-in-Kind
Under the Income Tax Law, benefits-in-kind
(“BIKs“) are non-tax deductible for
employers and for employees receiving the BIKs. The examples of
BIKs that are provided by employers to employees include provision
of cars, housing, education, meals, and other BIKs necessary to
carry out employee’s works.
Law 7/2021 stipulates that BIKs may be tax deductible for
employers and taxable for employees. Consequently, such requirement
would shift the tax obligation from employers to employees
receiving BIKs. Note that Law 7/2021 exempts the following BIKs
from being taxable: (i) foods and beverages to employees, (ii) BIKs
in certain areas, (iii) BIKs that must be provided for work-related
matters (e.g., safety work equipment, uniforms), (iv) BIKs funded
by state budget, regional state budget, or village budget, or (v)
certain BIKs with certain limitations.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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