Taxation in Indonesia


Taxation in Indonesia includes income tax and value added tax.

Definitions

Indonesian taxation is based on Article 23A of UUD 1945, where tax is an enforceable contribution exposed on all Indonesian citizens, foreign nationals and residents who have resided for 183 cumulative days within a twelve-month period or are present for at least one day with intent to remain. Generally if one is present less than 120 days, then no tax is owed except on Indonesia source income. Some tax treaties may supersede this or defer to the Indonesia presence test for the year in question. Tax treaties deal with taxation of foreign source income for services rendered in Indonesia which are generally taxed if performed for 120+ days even though one may not be a tax resident.
Indonesia has a stratification of taxation including Income Tax, Local Tax and Central Government Tax.

The Indonesian Taxation Laws

The relevant fundamental taxation laws of Indonesia include:
Indonesian Taxation law provides the following definitions to clarify whom exactly is obligated to pay tax:
Individuals or statutory bodies which meet relevant criteria stipulated, including certain tax collectors or withholders.
Statutory bodies are defined by Indonesian Taxation Law as groups of persons and/or capital which constitutes a unit. These are more clearly defined as such entities undertaking or not undertaking businesses, covering limited liability companies, limited partnership companies, other companies, state or regional administration-owned companies in whatever names and forms, firms, joint companies, cooperatives, pension funds, partnerships, groups, foundations, mass organisations, social and political organisations or organisations of the same type, institutions, permanent establishments and other forms of statutory bodies.
Companies and entrepreneurs are defined in the context of Indonesian Taxation Law as those in their business activities or works/jobs produce goods, import goods, export goods, undertake trading businesses, utilize goods, provide or utilize services from regions outside the customs area.
Companies are subject to Value-Added Tax, pursuant to Law of 1984 and all amendments, excluding the few small-scale businesses whose criteria are stipulated by the Minister of Finance.
The Indonesian Tax Period is defined as one calendar month or other periods stipulated by a decision of the Minister of Finance at the maximum of 3 calendar months.
Tax Year shall be the period of 1 calendar year unless taxpayers use accounting years different from the calendar year.
Indonesian Taxpayers must submit a Tax Return form which details and reports the calculation of tax payment owed by them. Tax Returns may cover a tax period or a tax year.
Tax Payments shall be letters used by taxpayers to pay or remit tax due to the state cash through Post Offices and/or state- or regional administration-owned banks or other payment point appointed by the Minister of Finance.
The penalties for Tax Evasion and Avoidance are very strict in Indonesia. For Underpaid-Tax, Additional Underpaid-Tax, Overpaid-Tax and Nil-Tax Assessments- which may be received by the debtor in the form of letters, warrants and administrative sanctions.
Tax Credits for over-taxation or overpayment is withheld until the subsequent year- as payouts are not issued within the same financial year.
Independent works/jobs shall be jobs executed by individuals having special expertise in a bid to earn income not bound by certain working relations.
Appeals against the Directorate General of Taxes may be arbitrated via the Court of Appeals at taxpayer expense.

Taxation Rates

Indonesia has a series of progressive sliding rate taxes for all categories. Furthermore, as a developing nation, much economic activity is done at the 'cottage' level where sales and services taxation are tax exempt.
Indonesia's taxations system recognises the economic reality of the majority poorer citizens and the poor are exempt from almost any taxation.
The underlying ethic of "gotong-royong"- "neighbourly help" is applied where the more fortunate wealthier are enforced to meet their moral obligation of a heavier burden of tax- regardless of arbitrary arguments to its fairness.
The tax-free poverty threshold for Indonesian income earners is also dependent on regions as there exists some disparity between the purchasing power of the Rupiah between regions and intra-regionally between larger urban cities and smaller ones. The Capital, Jakarta is considered the most expensive city in term of all goods, services and wages.

Income Tax

Income taxation is subject to provincial government regulations defined by the economic realities of that particular area. As mentioned above, the poorer denizens are exempt from almost all taxation.
BandAnnual IncomeRate
Tax FreeUp to Rp54,000,0000%
Band IUp to Rp50,000,0005%
Band IIRp50,000,000 to Rp250,000,00015%
Band IIIRp250,000,000 to Rp500,000,00025%
Band IVAbove Rp500,000,00030%

Although rates are Regionally variable, for the sake of illustration income tax basically employs a progressive rate, commencing at 10% gross salary income per annum, sliding to 30% per annum. Regulations are being debated as of 2008 to include income from shares, dividends, trusts and such related.
For example, the most urbanised and industrialised region, DKI Jakarta, income taxation commences with salaries greater than one million Rupiah per calendar month, at a rate of 10%, which slides progressively to 40%.

Corporation Tax

Companies in Indonesia are taxed at a rate of 25%, for both domestic and international sourced income. Resident Indonesian companies are required to withhold tax at a rate of 20% from payments to foreign companies.

Corporate Income TaxInvestments, I. (n.d.). Tax system of Indonesia. Retrieved from https://www.indonesia-investments.com/finance/tax-system/item277

A company is responsible to pay the obligations for the tax in the case the company’s home country is Indonesia. A foreign company that is operating in an establishment in Indonesia and performs different activities in Indonesia is obligated to pay the taxes that are put by Indonesia. In the case that the foreign company does not have an entity in Indonesia but makes income through different business activities in this country, then tax liability through withholding of the tax by the individual/company that pays the income is imposed. Normal rate of taxation in Indonesia corporate income is 25%. Companies that put a minimum of 40% of their shares to the public and are listed in the Indonesia Stock Exchange offer are taxed on 20%. Companies that have a gross turnover below 50 Billion have a discount on 50% from the standard corporate income tax, in other words 12.5%. From the Finance Ministry regulations, companies with gross turnover under 4.8 Billion is only 0.5% of the total revenue since July 2018.

Property tax

Annual Property taxes
In Indonesia, property taxes are imposed through progressive rates. In this logic;
- Properties that have the value of 200 million rupiah have a property tax of 0.01%.
-Properties that are valued between 200 million rupiah and 2 billion rupiah have a property tax of 0.10%.
-Properties that are valued between 2 billion rupiah and 10 billion rupiah have a property tax of 0.20%.
-Property that are valued more than 10 billion rupiah have a tax of 0.30%.
Tax on Rental Income
The tax on rental income depends on the residence, the use of the space and other specifics. Rental income tax for non-residents in Indonesia is imposed in a flat rate of 20% of gross income. For income gained by companies, they are taxed by a flat rate of 25% of net income. The VAT is imposed in a flat rate of 10% on the gross rental income.

Value Added Taxation/Goods and Services Taxation

A Goods and Services Tax is levied at the rate of approx 10% at point of sales, by major vendors. Sales and services tax are exempt from cottage economies and industries.
A VAT rate of 0 percent is applied to the following taxable events:
- export for taxable goods
- export for intangible taxable goods
- export for taxable services
VAT base on equivalent to the sale price/service fee or import/export value.

Land and Constructions Tax

and Tax for the buildings constructed thereupon must be paid annually, or may be paid via arrangement in ten-year blocks by Indonesian land title deed-holders, pursuant to relevant criteria for exclusions. In general terms, this tax is applicable mainly to those of the middle classes and upwards.
Land holding businesses must also pay this tax.″—
Land and Constructions thereupon are calculated at a value calculated by the Regional government- which is less than real market worth. This calculated value has the :wikt:caveat|caveat of being a legally non-negotiable purchase price if the Government wishes to procure said land.
In Jakarta, land tax is 10% of Government calculated value.
Non-Indonesians may not legally own land but may arrange long-term assured leases from the Indonesian Central Government. As such, Foreign Nationals may not subject to the Land Tax obligation of Indonesians.
Exemptions from Land Tax exist for poorer society. Land Tax calculations are considered a highly specialised skill- most especially as the punishments and sanctions for false reportage are very severe and indeed costly.

Vehicles

Passenger Vehicle Tax is required to be paid by all owners, the rationale being those fortunate enough to afford a motor vehicle can afford to subsidise their poorer brethren who rely on far less luxurious public transportation.
Again, Regional Government legislates the specific definitions regarding this tax.
For the city of Jakarta, the city with the greatest vehicle ownership, most congested city, 1% of current vehicle real agreed market is due annually.
Furthermore- passenger vehicles with an engine capacity greater than 4 cylinders are taxed again and as are those mass greater than 1500 kilogrammes.
Transportation and logistics vehicles, trucks/lorries, buses, vans and utility pick-ups are taxed according to axle number, vehicle mass and maximum safe gross loaded weight.
Maximum loaded weight inspections are frequent and random and joked colloquially as the Police's cash-cow.
Petroleum is taxed at a rate of approximately 25% – though remains cheaper than neighbouring developed nations such as Australia or Singapore.