Welcoming the new year, the Indonesian government introduces a new regulation concerning the withholding tax rate for individual income tax withholding (Reg 58). The regulation was promulgated on 27 December 2023 and became effective on 1 January 2024. The government said that this regulation was issued to simplify the withholding of individual income tax.
What’s New?
Reg 58 introduces a new tax rate for the calculation of the withholding of income tax in addition to the tax rate as stipulated under the Income Tax Law, i.e., effective tax rate. Prior to the issuance of Reg 58, the tax rate for withholding of income tax in Indonesia is as follows (Income Law Tax rate):
After the issuance of Reg 58, the income tax tax rate is divided into (i) Income Law Tax rate and (ii) Effective Tax rate (monthly tax rate and daily tax rate – depending on the nature of the job). The monthly effective tax rate is further divided into three categories – based on the amount of income and the status of the taxpayers (married/not and with dependence/not):
- Category A
This category consists of the taxpayers who are (i) not married without any dependent, (ii) not married with one dependent, or (iii) married without any dependent.
The tax rate for this category ranges from 0% (for taxpayers with a gross monthly income of IDR 0 – 5.4 million – approx. USD 350) to 34% (for taxpayers with a gross monthly income of above IDR 1.4 billion – approx. USD 90,500).
- Category B
This category consists of the taxpayers who are (i) not married with two dependents, (ii) not married with three dependents, (iii) married with one dependent, or (iv) married with two dependents.
The tax rate for this category ranges from 0% (for taxpayers with a gross monthly income of IDR 0 – 6.2 million – approx. USD 400) to 34% (for taxpayers with a gross monthly income of above IDR 1,405,000,000 – approx. USD 90,800).
- Category C
This category consists of the taxpayers who are married with three dependents. The tax rate for this category ranges from 0% (for taxpayers with a gross monthly income of IDR 0 – 6.6 million – approx. USD 425) to 34% (for taxpayers with a gross monthly income of above IDR 1,419,000,000 – approx. USD 91,700).
As for the taxpayers whose nature of work is paid daily, the applicable effective tax rate according to Reg 58 ranges from 0% (for taxpayers with a gross daily income of IDR 0 – 450,000 – approx. USD 30) to 0.5% (for taxpayers with a gross daily income of above IDR 450,000 to 2.5 million – approx. USD 160).
At the end of the tax year (December), the outstanding income tax to be withheld would be the income tax based on the Income Law Tax rate calculation minus the paid amount during the January-November period.
Calculation Examples
Reg 58 provides a case study for the implementation of the new tax rate:
Mr. A is an employee of PT XYZ. His monthly salary is IDR 10 million and he pays for a pension fund in the amount of IDR 100,000 per month. He is married and does not have any dependency (hence the tax rate under Category A would be applied in his case).
Calculation:
- Monthly Effective Tax rate
From January – November, PT XYZ would deduct IDR 200,000 from the salary of Mr. A. This figure is obtained from the following calculations:
2% x IDR 10 million.
The applicable effective tax rate in Mr. A’s case is 2%.
- Income Law Tax rate
The calculation under the Income Law Tax rate would calculate the annual net income of Mr. A and the non-taxable income.
Annual income: IDR 120 million
Deduction: IDR 7,200,000
- Official fee (5% x IDR 120 million)
- Pension fund (IDR 100,000 x 12)
Net income: IDR 112,800,000
Non-taxable income: IDR 58,500,000
Taxable income: IDR 54,300,000
The annual tax income according to the Income Law Tax rate would be IDR 2,715,000 (5% x the Taxable Income).
The outstanding income tax of Mr. A to be withheld by PT XYZ for December would be IDR 2,715,000 – IDR 2,200,000 (the total amount withheld from January-November based on the effective tax rate) = IDR 515,000.
Commentary
At a glance, the new effective tax rate introduced by the government seems to simplify the calculation of the tax income to be withheld from an employee – which should ease off the employer’s task. The directorate general taxation, through one of its staff, ensures that there is no additional obligation imposed on the taxpayers with the introduction of this effective tax rate.
For Further Information, Please Contact:
MetaLAW, Legal Consultant, Jakarta, Indonesia
general@metalaw.id
1. PP No. 58 Tahun 2023 tentang Tarif Pemotongan Pajak Penghasilan Pasal 21 atas Penghasilan sehubungan dengan Pekerjaan, Jasa, atau Kegiatan Wajib Pajak Orang Pribadi
2. As quoted from https://www.cnbcindonesia.com/news/20240102063546-4-501863/tahun-baru-ingat-hitung-pajak-penghasilan-juga-baru
