Minister of Finance Regulation Number 66 of 2023 concerning Income Tax Treatment on Reimbursement or Reward

Jakarta, Ideatax -- Recently, the Government issued Ministry of Finance Regulation Number 66 of 2023 concerning Income Tax Treatment on Reimbursement or Reward in Connection with Work or Services Received or Obtained in the Form of Natura or Enjoyment. In the consideration, it is stated that one of the objectives of the issuance of technical regulations on fringe benefit tax is to provide legal certainty and fairness in the treatment of income tax on benefits obtained in the form of money or natura. Additionally, the issuance of this regulation is also motivated by the effort to avoid eroding of the tax base.

As a derivative regulation of the Harmonization of Taxation Law and Government Regulation Number 55 of 2022 concerning Adjustment of Regulations in the Income Tax Sector, there are several new things regulated in this regulation, one of which is the definition and limitations of natura that are not subject to income tax.

In general, this regulation regulates that income or compensation in the form of natura or enjoyment obtained in connection with work or services is income that is the object of income tax for the recipient. Regarding the employer, the costs incurred to provide such benefits or income natura can be deducted from gross income to calculate taxable income.

However, this regulation also regulates that there are several rewards or reimbursements in the form of natura that are excluded from the object of income tax, including:

• Food, beverages, food ingredients and beverage ingredients for all employees;

• Natura and or enjoyment provided in certain areas;

• Natura and or enjoyment that must be provided by the employer in the performance of work;

• Natura and or enjoyment comes from the APBN and APBD;

• Regulation of natura and or enjoyment with certain types and limits.

Acquisition of Natura in the Form of Food and Beverages

Food, beverages, and food/beverage ingredients that are exempt from the imposition of income tax on natura are food and beverages provided by the employer at the workplace, food/beverage coupons to marketing, transportation and other field employees and food and/or beverage ingredients for all employees with certain limitations.

PMK 66 of 2023 regulates the value of food and/or beverage coupons provided to employees whose nature of work cannot eat and drink in the office such as marketing and transportation employees is IDR 2,000,000 or the average value of food and beverages for each employee within a period of one month. In the event that the coupon given exceeds the value of 2 million rupiah or the average given to all employees, then the excess is considered as an income tax object for the recipient.

Natura to be Provided by the Employer

In carrying out work, sometimes the employer is required to provide goods and or facilities needed as a requirement for the security, health and safety of employees such as the regulation of uniforms, safety equipment, employee shuttle facilities, lodging for crew members, and or natura needed in the context of handling endemic, pandemic or national disasters. For this kind of natura and or enjoyment, the government excludes it as an income tax object for the recipient.

However, PMK-66 of 2023 also regulates that natura in the context of carrying out work as a requirement for security, health and safety must be regulated by the Ministry or Institution based on the regulations of laws and regulations.

Natura Provided in Certain Areas

Often, a job is performed in a certain area that does not have adequate facilities and facilities such as mining areas, plantations, forests, offshore and so on. Ministry of Finance Regulation No. 66 of 2023 regulates that certain areas are areas that have economically viable potential to be developed but have inadequate economic infrastructure and are difficult to reach by public transportation.

Through this Ministry of Finance Regulation, the government regulates that the natura and or enjoyment in certain areas which include housing facilities, health services, education, worship, transportation and or sports received by employees and their families are exempted as income tax objects.

However, PMK 66 Year 2023 also regulates that sport facilities such as golf, motorized boat racing, horse racing, gliding or automotive sports are not included as natura that is exempt from income tax object.

To be able to utilize the facilities in the form of natura gifts that are exempted as tax objects, the employer must submit an application for the determination of business location in a certain area to the regional office. Before submitting the application for determination of a certain area, the employer must have submitted the Annual Tax Return for the last two years, submitted the periodic tax return for the last three months, have no tax debt and not be handling tax criminal offenses.

Natura with specific types and limitations

Regarding specific types and limitations of Natura or benefits, Minister of Finance Regulation Number 66 of 2023 has provided clear limitations. Attachment A of Minister of Finance Regulation Number 66 states that there are several types of natura and/or benefits that are exempted as objects of income tax. These include sports facilities provided by employers, excluding golf, horse racing, motorized boat racing, flying kites, and automotive sports, with a limit of one million five hundred thousand Indonesian rupiah per employee within a one-year period.

Additionally, the provision of natura that is exempted as an object of income tax also includes gifts from employers on religious holidays, gifts from employers on non-religious holidays with a value not exceeding three million rupiah per employee within one year, work equipment and facilities such as computers and laptops, shared residential facilities such as dormitories or barracks, housing facilities with a value not exceeding two million rupiah per employee within one year, vehicle facilities for employees with gross income of less than one hundred million rupiah within one year, as well as several other facilities with specific types and limitations.

Natura Calculation and Assessment

As mentioned earlier that since the Taxation Harmonization Law was enacted, the regulation of natura can be deducted in the calculation of taxable income for the giver of natura. On the other hand, natura and or pleasure is an income tax object for the recipient. Therefore, a technical guideline is needed for the assessment and calculation of income in the form of reimbursement or compensation in the form of natura and or enjoyment.

Ministry of Finance Regulation No. 66 of 2023 regulates that there are two methods of valuing income in the form of natura or enjoyment: the market value method and the total cost method. The market value method is used to value natura reimbursements or rewards. On the other hand, the total cost method is used to calculate the amount of costs incurred or should have been incurred by the employer for reimbursement or reward in the form of enjoyment.

After assessing the natura and/or enjoyment provided in the context of work or services, the employer is obliged to calculate income tax and withholding on income in the form of natura reimbursement or enjoyment. However, PMK 66 of 2023 regulates that for the regulation of natura and or enjoyment obtained or received during the tax period January to June 2023, the employer does not need to make income tax withholding. Furthermore, PMK 66 of 2023 regulates that for compensation in the form of natura received during the period of January 2023 to June 2023, the recipient of the natura is obliged to calculate, pay and report it in the tax return.

Related Regulations:

• Law No. 7 of 1983 on Income Tax as amended by Law No. 7 of 2021 on Harmonization of Tax Regulations

• Government Regulation number 55 of 2022 concerning Adjustment of Regulations in the Income Tax Sector

• Ministry of Finance Regulation number 66 of 2023 concerning Income Tax Treatment of Reimbursement or Reward in Connection with Work or Services Received or Obtained in the Form of Natura or Enjoyment