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Jakarta, Ideatax -- Director General of Taxes, Suryo Utomo, said that soon, the government will implement an average effective tariff for calculating income tax for individual employees and certain entrepreneurs (CNBC, 2023). The plan is the effective tax rate will be applied starting January 2024 (CNBC, 2023).
It is not without reason that the government implemented the new regulation. The government considers that the current personal taxation scheme is too complicated. At least, there are currently more than 400 scenarios for calculating Individual Income Tax withholding in the form of income received by permanent employees, non-permanent employees, non-employees and so on. It is necessary to improve the calculation scheme of Income Tax Article 21 Individuals to facilitate the implementation of tax obligations to taxpayers.
The average effective rate is the tax rate imposed on individuals and corporations on income received during the year (Investopedia, 2021). Some countries that have imposed an average effective tax rate include the United States, Malaysia, South Africa, and Australia. Malaysia, for example, has made an effective tax rate table of 732 pages as a taxpayer's guide to withholding Income Tax Article 21 (LHDN, 2018). Thus, deductors in the neighboring country easily multiply gross income by the effective tax rate imposed.
Not much different from Malaysia, the imposition of an effective tax rate in Indonesia is done by multiplying the gross income by the effective tax rate that has been determined. For example, Mr. Amir, a permanent employee with married status with a child (K/1), earns a gross income of Rp 10,000,000. If the effective tax rate determined for an income range of Rp 10,000,000 with K/1 status is assumed to be 3%, then the amount of income tax withheld is 300,000 per month.
By using this effective tax rate scheme, tax cutters do not need to calculate the number of office costs, PTKP, and tariff layers in determining the amount of Income Tax Article 21 payable. It is because the effective tax rate for OP income tax that is being formulated has taken into account variables such as PTKP, tariff layers, and office costs.
This effective tax rate originally applied to the tax period from January to November of the current year. Meanwhile, in December of the current year, the withholder must recalculate the amount of tax withheld during the year. Thus, in December of the current year, the withholder can adjust the amount of the payable tax.
Logically, this effective tax rate use will be greatly facilitate the withholding because by using the predetermined table, the withholder can easily calculate the amount of income tax. The effective tax rate will also increase the transparency of the income tax 21 withholding between the withholder and the employee.
However, the change in the calculation mechanism of Income Tax Article 21 is not without challenges. The low awareness and understanding of income tax 21 is a challenge for the DGT. Therefore, the tax authorities need to work hard to communicate the changes in the calculation scheme of Income Tax Article 21 so that there will be no distortion in its application.
The average effective tax rate application is expected to be a solution to the chaotic calculation of Income Tax Article 21 in Indonesia, which ultimately increases taxpayer compliance.
References
CNBC. (2023, November 23). Sah! Hitungan Tarif Pajak Karyawan Berubah Tahun Depan. Retrieved from CNBC: https://www.cnbcindonesia.com/news/20231124174327-4-491851/sah-hitungan-tarif-pajak-karyawan-berubah-tahun-depan
CNBC. (2023, November 24). Terbaru! Rumus Tarif Efektif untuk PPh Karyawan 2024. Retrieved from CNBC: https://www.cnbcindonesia.com/news/20231127075705-4-492199/terbaru-rumus-tarif-efektif-untuk-pph-karyawan-2024
Investopedia. (2021, March 21). Effective Tax Rate: How It's Calculated and How It Works. Retrieved from Investopedia: https://www.investopedia.com/terms/e/effectivetaxrate.asp#:~:text=An%20effective%20tax%20rate%20is,on%20different%20levels%20of%20income.
LHDN. (2018). JADUAL POTONGAN CUKAI BULANAN. KUALA LUMPUR: LHDN.
