On October 1, 2026, Coordinating Minister for Economic Affairs Airlangga Hartarto said the government was calculating an adjustment to the non-taxable income threshold (penghasilan tidak kena pajak/PTKP), taking into account inflation since 2016. On October 9, Deputy Finance Minister Juda Agung emphasized that the policy was still under in-depth review.
An increase in the PTKP could help preserve purchasing power, but it could also reduce personal income tax (pajak penghasilan/PPh) revenue. The policy should be assessed based on its ability to protect purchasing power, ensure fairness, and maintain fiscal sustainability. Adjusting the PTKP threshold is one part of that effort.
What the PTKP Covers
The PTKP is the amount deducted from an individual taxpayer’s net income before personal income tax is calculated. Gross income is reduced by employment expenses and pension contributions to determine net income. After the PTKP is deducted, the remaining amount becomes taxable income (penghasilan kena pajak/PKP), which is subject to the progressive rates under Article 17 of the Income Tax Law.
The progressive rates are 5% on taxable income up to IDR 60 million, 15% on the portion exceeding IDR 60 million up to IDR 250 million, 25% on the portion exceeding IDR 250 million up to IDR 500 million, 30% on the portion exceeding IDR 500 million up to IDR 5 billion, and 35% on the portion exceeding IDR 5 billion.
Under Minister of Finance Regulation No. 101/PMK.010/2016, the PTKP is set at IDR 54 million per year for an individual taxpayer, with an additional IDR 4.5 million for a married taxpayer and IDR 4.5 million for each dependent, up to a maximum of three dependents. The threshold was raised from IDR 36 million to IDR 54 million in 2016 and has remained unchanged since then.
The PTKP differs from the minimum wage. By definition, the minimum wage is the lowest wage an employer is legally required to pay, as determined by the governor. The amount varies by region, reaching approximately IDR 5.73 million per month in Jakarta and IDR 2.3 million in West Java and Central Java.
The PTKP, by contrast, is a nationally applicable income threshold used to calculate tax. Therefore, a proposal to link the PTKP to the minimum wage, which the government has reportedly also been considering, requires clarity on which region’s minimum wage would serve as the reference.
The PTKP also differs from gross income. A single worker earning Jakarta’s minimum wage has annual net income of approximately IDR 65 million after employment expenses are deducted. This amount already exceeds the current PTKP threshold.
Fiscal Headroom
As of the time of writing, no official estimate was available on the potential revenue loss resulting from an increase in the PTKP. The fiscal impact would depend on the size of the increase, the number of taxpayers in each tax bracket, marginal tax rates, family status, and tax reporting behavior.
Article 21 income tax accounted for 12.2% of tax revenue through August 2026. An adjustment to the PTKP should therefore be accompanied by an adequate assessment of its fiscal impact.
A reduction in the number of taxpayers with taxable income does not automatically mean that tax revenue will decline by the same proportion. Taxpayers in the lowest tax bracket generally contribute relatively little to overall revenue.
As an illustrative simulation, consider a 31.5% increase in the PTKP for single taxpayers, raising the threshold to approximately IDR 71 million per year. The calculation assumes that workers have no other income, employment expenses amount to 5% of gross income subject to an annual cap of IDR 6 million, and the progressive rates under Article 17 of the Income Tax Law apply.
The results show that workers earning IDR 4.5 million per month would receive no benefit because they do not pay personal income tax in the first place. Workers earning IDR 10 million per month would save approximately IDR 850,000 annually, equivalent to 0.7% of gross income. Meanwhile, workers earning IDR 40 million per month would save approximately IDR 4.25 million annually, or 0.9% of gross income.
Who Benefits?
The benefits of an increase in the PTKP depend on the marginal tax rate applicable to each taxpayer. An additional deduction of IDR 17 million therefore produces different savings depending on the tax bracket. At a marginal rate of 5%, the maximum tax saving from the additional deduction would be IDR 850,000. At a marginal rate of 25%, the saving could reach IDR 4.25 million, provided the entire additional deduction falls within that tax bracket.
This means that the monetary benefits tend to be greater for middle- and higher-income taxpayers. By contrast, informal workers, those earning below the taxable income threshold, and people who are not registered in the tax system would not receive direct benefits from an increase in the PTKP.
The additional PTKP allowance of IDR 4.5 million per dependent, capped at three dependents, follows the same logic. The value of the tax benefit depends on the taxpayer’s marginal tax rate.
An increase in the PTKP is therefore an appropriate way to adjust the tax threshold for inflation for those who pay personal income tax. However, the policy is unlikely to be sufficiently effective if used as the primary instrument to support low-income workers.
Lessons from Neighboring Countries
Comparing tax policies across countries requires more than looking at the nominal amount of income exempt from tax. Malaysia, Thailand, and Singapore use a combination of income deductions, zero-rate tax brackets, family reliefs, and tax deductions or rebates.
Malaysia provides relief in the form of deductions from chargeable income, including RM 9,000 (approximately IDR 17.5 million, assuming an exchange rate of RM1 to IDR 4,385.2) for individuals, RM 4,000 for spouses, and RM 2,000 per child. The country also offers a RM 400 tax rebate to taxpayers with chargeable income of no more than RM 35,000.
Thailand combines a deduction of 50% of employment income, capped at THB 100,000 (approximately IDR 53.4 million, assuming an exchange rate of THB1 to IDR 534.1), with a personal income allowance of THB 60,000. A zero tax rate applies to the first THB 150,000 of taxable income.
Singapore does not have a single threshold directly equivalent to Indonesia’s PTKP. A zero tax rate applies to the first SG 20,000 (approximately IDR 280million, assumingan exchangerate of SG 1 to IDR 13,998.8) of taxable income. The country also provides earned income relief, which is granted automatically, child relief, and relief for mandatory Central Provident Fund (CPF) contributions. Total personal reliefs are capped at SG $80,000.
These comparisons show that the effective threshold for taxation in other countries is shaped by several instruments, including zero-rate tax brackets, expense deductions, family reliefs, social security contributions, and tax rebates that can be targeted at specific groups. Indonesia, by contrast, continues to rely primarily on the PTKP.
Differences in social security systems, income structures, and tax years also mean that cross-country comparisons of tax burdens must be made carefully. For this reason, this article does not calculate tax burdens for hypothetical taxpayer profiles across countries, as doing so could produce precise-looking figures that are not genuinely comparable.
As a point of reference, the OECD’s 2024 Economic Survey of Indonesia states that Indonesia’s PTKP is equivalent to 65% of GDP per capita and recommends lowering the threshold to broaden the tax base. This recommendation differs from the government’s plan to raise the PTKP. The divergence highlights the need to weigh the impact on purchasing power against the government’s revenue requirements.
PTKP Adjustment Strategy
The government could consider six steps when designing an adjustment to the PTKP.
First, publish simulations of the fiscal impact before setting a new threshold. The Directorate General of Taxes (DGT) should provide data on the number of taxpayers in each tax bracket, potential revenue losses under several increase scenarios, the distribution of benefits by income group and family status, and options for offsetting the revenue shortfall.
Second, establish a transparent calculation basis. Cumulative inflation since 2016, at approximately 31.5%, could serve as a starting point. On this basis, the PTKP for single taxpayers would rise to around IDR 71 million per year. This figure should be treated as an initial benchmark to be tested through fiscal simulations, not as an increase that must automatically be implemented.
Third, introduce periodic adjustments. Following the initial adjustment, the government could consider an indexation mechanism, with reviews every three years based on inflation, wage trends, and per capita income. This mechanism could reduce the risk of the PTKP remaining unchanged for years at a time.
Fourth, separate PTKP policy from assistance for low-income workers. The government should develop more targeted relief for groups that do not directly benefit from an increase in the PTKP, taking fiscal capacity and the accuracy of targeting into account.
Fifth, maintain tax registration and reporting requirements for taxpayers whose income falls below the PTKP. This would allow the government to retain data for tracking income trends, compliance, and the potential tax base.
Sixth, evaluate the policy two years after implementation. The evaluation should use transparent indicators, including net Article 21 income tax revenue, tax return filing compliance, and trends in household consumption.
PTKP adjustments should be designed as part of a transparent, fair, and sustainable tax system. An increase could help offset the impact of inflation on the incomes of workers who pay taxes, but it would not be sufficient to support all low-income groups.
The government should therefore determine the size of the increase based on data, assess its fiscal impact, and complement it with more targeted relief measures. This approach could help protect workers’ purchasing power without overlooking the state revenue needed to finance development.
Legal References
- Law No. 7 of 1983 on Income Tax, as most recently amended by Law No. 7 of 2021 on the Harmonization of Tax Regulations (Articles 7 and 17);
- Minister of Finance Regulation No. 101/PMK.010/2016 on the Adjustment of the Non-Taxable Income Threshold (PTKP).
Also Read:
Tax Refunds Are a Right, Not a Fiscal Favor
What Is Tax in Indonesia?
Breaking Down the Article 21 Withholding Tax Provisions
Writer: Ideatax | Editor: Thomas Rizal
