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Jakarta, Ideatax -- Fringe Benefit Tax (FBT) or tax-in-kind is defined as a form of tax paid by employers for non-cash benefits provided to employees excluding the compensation paid (Business Standard, 2023). In short, a fringe benefit tax is a tax on in-kind and/ or enjoyment paid by employers to their employees.
Fringe benefits, or in-kinds are basically nothing new in tax regulations. Through Law No. 7 of 1983 concerning Income Tax as amended by Law No. 36 of 2008, the government stipulates that the distribution of in-kind and/ or benefits are not subject to income tax. Moreover, this provision also stipulates that reimbursement or compensation, in connection with in-kind work or services provided is exempted from costs that can be deducted from gross income.
The derivative rules also stipulate that although in general, in-kind reimbursement or compensation cannot be deducted when calculating taxable income, there are some in-kind distributions that can be deducted from gross income. Among them are the provision of food and beverage for all employees; compensation in the context of carrying out duties in certain areas, and in-kind distribution which is a must in carrying out duties. This provision is regulated in Regulation of the Ministry of Finance Number 167/PMK.03/2018.
Current Arrangement
As time went by, the Government made changes to the provisions regarding in-kind. Through Law No. 7 of 2021 concerning Tax Harmonization (HPP) Law, the Government stipulates that in-kind and/ or enjoyment is income that is subject to income tax.
The HPP Law also stipulates that there are several in-kind or benefits that are exempt from income tax objects, including food, beverage and/ or its ingredients for all employees, in-kind and/ or benefits provided in certain areas, in-kind and/ or enjoyment that must be provided by the employer in carrying out duties, in-kind and/ or enjoyment sourced from or financed by the State Revenue and Expenditure Budget, the Regional Revenue and Expenditure Budget, and/ or the Village Revenue and Expenditure Budget; or in-kind and/ or enjoyment with certain types and/ or limitations.
Furthermore, to calculate Taxable Income, the HPP Law stipulates that reimbursement costs or compensation given in the form of in-kind and/ or benefits can be deducted from the amount of gross income. To be clear, although recipients consider in-kind income, employers consider in-kind as expenses that can be financed.
Based on the abovementioned statements, it is clear that through the HPP Law, the fringe benefit tax or tax-in-kind has officially been implemented in Indonesia. Besides Indonesia, there are several countries that have already implemented FBT. Australia, for example, has implemented FBT since 1986 (ATO, 2023). Moreover, New Zealand has implemented FBT since 2007 through the income tax act 2007 (NZ Legislation, 2023).
Derivative rules
Provisions regarding Tax on Natura in Indonesia were subsequently derived through Government Regulation or Peraturan Pemerintah (PP) Number 55 of 2022 concerning Adjustment of Regulations in the Field of Income Tax. The regulation stipulates that in-kind reimbursement or compensation and/ or benefits is an object of income tax as referred to in Article 4 paragraph (1) letter A of the Income Tax Law.
In addition, the regulation also stipulates that reimbursement costs or compensation given in-kind and/ or enjoyment in connection with work or services can be deducted from gross income to determine taxable income by employers or compensation providers or reimbursement in form of in-kind and/ or enjoyment as long as it is a cost to earn, collect, and maintain income.
Furthermore, the regulation stipulates that there are several types of in-kind that are exempt from income tax objects:
• food, beverage and/ or its ingredients for all employees;
• in-kind and/ or enjoyment provided in certain areas;
• in-kind and/ or enjoyment that must be provided by the employer in carrying out duties;
• in-kind and/ or enjoyment sourced from or financed by the state revenue and expenditure budget; regional revenue and expenditure budget; and/ or village revenue and expenditure budget; or
• in-kind and/ or enjoyment with certain types and/ or limitations.
Regarding food and beverages that are exempt from in-kind tax objects, PP Number 55 of 2022 stipulates that food and beverages are food and or beverages that are distributed to all employees which include: food and/ or beverages provided by the employer at work, food and/ or drink coupons for employees who cannot take advantage of the provision of food and/ or beverages due to the nature of their work, such as employees in the marketing, transportation department and other external services; and/ or food or beverages ingredients for all employees with a certain value limit.
Furthermore, related to nature and/ or enjoyment provided in certain areas, Government Regulation Number 55 of 2022 stipulates that infrastructure and/ or facilities at work locations for employees and their families are in the form of housing, including housing, health services, education, worship, transportation and or sports can be exempted from income tax as long as the business location of the employer obtains a certain area determination from the Director General of Taxes.
Furthermore, PP Number 55 of 2022 also stipulates that in-kind and/ or enjoyment that must be provided by employers in carrying out work includes uniforms, equipment for work safety, employee shuttle facilities, lodging for crew members and the like, and in-kind and / or enjoyment received in the context of handling an endemic, pandemic or national disaster is excluded as an object of income tax as long as it is required by the Ministry or Institution for the security, health and safety of employees.
Even though the HPP Law and PP Number 55 of 2022 have explained that in-kind and/ or enjoyment is an object of income tax for the recipient, it is necessary to have technical regulations governing limits, rates, reporting procedures and payment procedures to avoid confusion in its implementation.
References
Australia Tax Office. (2023). Fringe benefits tax. Retrieved from https://www.ato.gov.au/Business/Fringe-benefits-tax/
Business Standard. (2023). What Is Fringe Benefit Tax (FBT)? Retrieved from https://www.business-standard.com/about/what-is-fringe-benefit-tax-fbt
New Zealand Legislation. (2023). Income Tax Act 2007. https://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1520127.html
Related provisions
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Law No. 7 of 1983 concerning Income Tax as amended by Law No. 36 of 2008 • Law No. 7 of 2021 concerning Harmonization of Tax Regulations
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Government Regulation Number 55 of 2022 concerning Adjustments to Regulations in the Field of Income Tax
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Regulation of the Ministry of Finance Number 167/PMK.03/2018 concerning Provision of Food and Beverages for All Employees as well as Reimbursement or Rewards in the Form of Kinds and Benefits in Certain Areas and Related to the Implementation of Work That Can be Deducted from the Employer's Gross Income
