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The government is working on regulations related to mandatory motor vehicle insurance. Although it can potentially cause polemics, the provision of compulsory motor vehicle insurance is a mandate from Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector. Through this law, the government can establish mandatory insurance programs as needed, including Third Party Liabilities (TPL) for motor vehicles.
The law also stipulates that within two years of the issuance of Law No. 4 of 2023, the government must draft a regulation related to third-party liabilities for traffic accident insurance.
It should be known that, compared to other countries in the Southeast Asian region, insurance penetration in Indonesia is relatively low. Singapore, for example, has an insurance penetration of 10.49% of the total population. On the other hand, Thailand has a penetration of 5.02%, and Vietnam has an insurance penetration of 2.52% of the total population (Kontan, 2024). The comparison of insurance penetration in the Southeast Asian region can be seen in the following graph:
Some analysts argue that the implementation of mandatory insurance has the potential to increase the burden on society. It is because not all people who own cars are wealthy. It could be that four-wheeled vehicles (such as online taxis) are a means for people to earn a living. However, the author does not want to polemicize further. Through this article, the author seeks to elaborate further on the provisions of taxation on insurance.
Some analysts argue that the implementation of mandatory insurance has the potential to increase the burden on society. It is because not all people who own cars are wealthy. It could be that four-wheeled vehicles (such as online taxis) are a means for people to earn a living. However, the author does not want to polemicize further. Through this article, the author seeks to elaborate further on the provisions of taxation on insurance.
Furthermore, Article 4 paragraph (3) letter e of the Income Tax Law also stipulates that payment from insurance companies due to accidents, illness, or the death of the insured person and scholarship insurance payments are not income tax objects.
On the other hand, Article 9 paragraph (1) letter d of the Income Tax Law also stipulates that health insurance premiums, accident insurance, endowment insurance, and scholarship insurance paid by individual taxpayers cannot be used as a deduction from gross income to determine income tax. However, if the insurance premium is paid by the employer and calculated as the income of the taxpayer concerned, then the insurance premium is considered income for individuals, and employers can reduce their gross income.
The explanation stipulates that insurance premiums for health, accident, life, endowment, and scholarship paid by individual taxpayers may not be deducted from gross income. When the individual receives insurance reimbursement or compensation, the receipt is not a tax object. If the insurance premium is paid or covered by the employer, then for the employer, the payment may be charged as a cost. For the employee concerned, it is income, which is a tax object.
At this point, we can see that the payment of motor vehicle insurance premiums is an object of income tax. If the insurance premium is paid by the employer, the premium is considered as income for the individual and reduces the gross income of the employer. On the other hand, if the vehicle insurance premium is paid by an individual, the payment does not deduct the gross income of the individual taxpayer concerned.
At the time of payment from the insurance company to the vehicle owner due to vehicle damage or for other reasons, the payment is an object of income tax. This is because the exemptions from the object of income tax are limited to the cause of accidents, illness, or the death of the person insured.
If the vehicle is owned by a corporate taxpayer, the insurance premium payment can be charged as long as it is directly used for the company's business activities and fulfills the 3M principle of income or obtaining (memperoleh), collecting (menagih), and maintaining (memelihara). However, it should be noted that the maintenance, repair, and care of sedan vehicles or similar vehicles used by the company for certain employees due to their position can only be charged 50% of the total maintenance cost. This is under the Decree of the Director General of Taxes Number 220 of 2002 concerning Income Tax Treatment of the Cost of Using Cellular Telephones and Company Vehicles.
