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Jakarta, Ideatax -- The government has issued regulations regarding the average effective rate at the end of 2023. Through Government Regulation Number 58 of 2023, the government, among others, regulates that starting in Fiscal Year 2024, the calculation and withholding of Income Tax Article 21 are performed using the average effective rate.
As a follow-up to the regulation, the government issued Minister of Finance Regulation Number 168 of 2023 concerning the Implementation Guidelines for Tax Withholding on Income in Connection with Work, Services, or Activities of Individuals.
There are many aspects discussed in the derivative regulation, including those related to tax cutters, income recipients, income withheld from Income Tax Article 21, tax base, allowable deductions, withholding rates, calculation of Income Tax Article 21, when payable, and the procedure for withholding Income Tax Article 21.
Income Tax Article 21 Withholders
Regarding the withholder of ITA 21, PMK 168 of 2023 stipulates that there are five types of withholders:
- Employers, namely individuals and entities that pay salaries, wages, honorariums, allowances, and compensation in the form of natura compensation in connection with work.
- Government agencies, including non-ministerial government agencies, state secretariats, secretariats of non-structural institutions, and other state institutions.
- Pension funds, labour social security organizers, and other bodies that pay pensions and old-age benefits.
- Individuals and entities that pay honorarium.
- Activity organizers who pay honorariums, prizes, or awards in connection with the implementation of activities.
In summary, the types of withholders can be seen in the following chart:
Although the regulation has stipulated that there are five main groups of Income Tax Article 21 withholders, there are three types of employers that are exempt from withholding Income Tax Article 21:
- Representative offices of foreign countries are based on the principle of reciprocity.
- International organizations with the condition that Indonesia is a member of the organization and does not run any other business to obtain income.
- Individuals who do not conduct business or independent work or individuals who conduct business or independent work but employ individuals who solely perform household chores or conduct other businesses that are not related to the employer's business activities.
Income Recipients
PMK 168 of 2023 explicitly regulates that eight groups of income recipients are subject to Income Tax Article 21 in connection with work, services, or activities, which include: permanent employees, retirees, members of the board of commissioners, non-permanent employees, non-employees, activity participants, pension plan participants who are still employees and former employees.
Furthermore, the provision also stipulates that what is meant as non-employees includes, among others, experts who do free work, musicians, hosts, singers, comedians, movie stars, soap opera stars, sportsmen, advisors, teachers, trainers, authors, researchers, translators, advertising agents, project supervisors or managers, insurance agents, multi-level marketing distributors, and so on.
Although the recipient of income is broadly defined under the income tax provision, this provision also regulates that several parties are excluded from the recipient of income, including officials of diplomatic representatives and consulates and representatives of international organizations, with the condition that they are not Indonesian citizens and do not carry out business or other activities to obtain income in Indonesia.
Income that is withheld by Income Tax
The income tax law defines income as any additional economic capacity received or obtained by taxpayers both from Indonesia and from outside Indonesia that can be used for consumption or to increase the wealth of the taxpayer concerned by name and in any form.
In the context of more technical provisions, income can be categorized into eight main groups, as follows:
- Income by permanent employees,
- Income received by pensioners,
- Compensation to members of the board of commissioners,
- Income of non-permanent employees, in the form of:
- Daily Wages,
- Weekly Wages
- Unit Wages,
- Piecework Wages,
- Wages received monthly.
- Fees to non-employees as compensation in connection with independent work, including:
- Honorarium
- Commission
- Fee,
- Rewards to activity participants, including:
- Pocket Money
- Representation Money
- Meeting fees
- Honorarium
- Gifts and awards
- Income or compensation received by former employees which includes:
- Production services
- Tantiem
- Gratuity
- Bonus
- Other rewards of an irregular nature.
In general, the types of income regulated in PMK 168 of 2023 are the same as the previous provisions. However, there is something different. The provisions of PMK 168 of 2023 stipulate that income in the form of natura by name and in any form is included as an income tax object. Thus, the employer must start recording and deducting income in the form of natura or enjoyment given to the recipient of income, as mentioned above.
Similar to the previous provisions, PMK 168 of 2023 also regulates income that is exempted as a tax object, as follows: including payment of insurance benefits or compensation, certain income in the form of natura pension and old-age insurance contributions, assistance-donations-zakat-infak and sadaqah, donated assets received by blood relatives in a straight line of descent of one degree, scholarships that meet certain requirements, profit shares given to members of a partnership, firm, or CV, and income tax borne by the government.
Due to the extensive discussion of PMK 168 of 2023, the provisions regarding the tax imposition base, average effective rate, and procedure for withholding Income Tax Article 21 will be discussed in the next article.
Related Provisions
Law No. 7 of 1983 on Income Tax as last amended by Law No. 7 of 2021 on Harmonization of Tax Regulations;
Government Regulation Number 58 of 2023 concerning Rates of Withholding Income Tax Article 21 on Income in Connection with Work, Services, or Activities of Individual Taxpayers;
Minister of Finance Regulation Number 168 of 2023 concerning Implementation Guidelines for Tax Withholding on Income in Connection with Work, Services or Activities of Individuals.
