Corporate social responsibility (CSR), known in Indonesia as tanggung jawab sosial dan lingkungan (TJSL), or social and environmental responsibility, is part of good corporate governance (GCG) and reflects a company’s responsibility toward society and the environment. Article 74 of Law No. 40 of 2007 on Limited Liability Companies (Company Law) requires companies operating in or related to natural resource sectors to carry out TJSL activities. This obligation aims to support sustainable economic development and improve the quality of life and the environment for companies, local communities, and society at large.
A similar obligation is stipulated in Article 15 of Law No. 25 of 2007 on Investment (Investment Law), which requires every investor to fulfill corporate social responsibility while taking into account the environment, values, norms, and culture of local communities.
From a business perspective, CSR spending can generate long-term benefits by enhancing corporate reputation, strengthening community relations, and mitigating social risks. CSR programs can also support compliance with environmental, social, and governance (ESG) standards, which investors consider when assessing business sustainability.
Principles Governing the Tax Treatment of CSR Expenses
Under commercial accounting standards, CSR expenditures are recorded as expenses that reduce profit in the current period. However, the recognition of expenses for tax purposes does not always align with their treatment under accounting standards. Not all commercial expenses are deductible from gross income when calculating taxable income.
Article 6(1) of the Income Tax Law, as amended by Law No. 7 of 2021 on the Harmonization of Tax Regulations (HPP Law), governs expenses that may be deducted from gross income. In principle, deductible expenses must be related to earning, collecting, and maintaining income, commonly referred to in Indonesia as the 3M principle. This relationship may be either direct or indirect.
CSR expenses may satisfy the 3M principle if they support business operations and the continuity of the company’s income-generating activities. However, this does not automatically make all CSR expenditures tax-deductible. Article 9(1)(g) of the Income Tax Law generally prohibits deductions for assistance, donations, and grants, except for specific categories of expenditure expressly permitted under applicable laws and regulations.
If CSR expenditures do not qualify for an applicable exemption or fail to meet the relevant administrative requirements, they cannot be deducted from gross income (non-deductible expenses). Companies must therefore make positive fiscal adjustments when filing their annual corporate income tax returns.
Types of Non-Deductible Expenses
Article 9 of the Income Tax Law sets out various expenditures that cannot be deducted from gross income. In the context of CSR, these provisions are important in determining whether particular expenditures qualify for tax deductions.
| Category | Explanation and tax implications |
| Profit distributions | Dividends, distributions of cooperative surplus, and other profit distributions are not deductible as expenses. |
| Personal expenses | Expenditures for the personal benefit of shareholders, partners, members, or dependents of taxpayers are not deductible. |
| Provision of reserves | The establishment of reserves is generally non-deductible, except for certain reserves permitted under tax regulations, such as bad debt reserves for specific sectors, insurance reserves, and reserves for certain reclamation or environmental restoration activities. |
| Personal insurance premiums | Premiums for health, accident, life, endowment, and education insurance paid by individual taxpayers are generally non-deductible, except under circumstances provided for in tax regulations. |
| Excessive payments to related parties | Payments to parties with special relationships are non-deductible to the extent that they exceed reasonable amounts. |
| Donations and grants | Assistance, donations, and grants are non-deductible unless they qualify for an applicable exemption and meet the relevant regulatory requirements. |
| Income tax | Income tax cannot be deducted as an expense. |
| Tax penalties | Administrative sanctions in the form of interest, fines, and surcharges, as well as criminal fines arising from tax violations, are non-deductible. |
Accordingly, CSR expenditures in the form of donations that fail to meet tax requirements, excessive payments to related parties, or allocations to social funds that have not yet been disbursed may not qualify as deductions from gross income. Tax treatment must be determined based on the nature of each transaction and the applicable regulations, rather than solely on whether an expenditure is labeled as CSR.
Types of CSR Expenditures Deductible from Gross Income
Tax regulations provide exemptions for certain types of donations and expenditures that may be deducted from gross income. One of the relevant provisions is Government Regulation No. 93 of 2010. Such deductions are permitted only when the expenditure falls within an eligible category and satisfies the applicable requirements.
1. Donations for National Disaster Relief
Donations for disaster relief may be deducted from gross income if they meet the requirements under applicable tax regulations. This provision covers contributions for national disasters formally designated in accordance with prevailing laws and regulations.
Donations must be channeled through authorized institutions or otherwise comply with the distribution requirements stipulated in the relevant regulations. Contributions made directly to disaster victims without satisfying these requirements may not qualify for tax deductions.
2. Donations for Research and Development
Donations for research and development (R&D) activities may be deducted from gross income if they meet the applicable requirements. The activities must be carried out in Indonesia, and the funds must be channeled through research and development institutions that satisfy the relevant criteria.
3. Expenditures for Social Infrastructure Development
Expenditures for social infrastructure development may be deductible if they meet the applicable tax requirements. The infrastructure must be non-profit in nature and intended for public use.
Examples include the construction of places of worship, community healthcare facilities, public libraries, arts centers, and museums. The deductible amount depends on the expenditures that qualify under the applicable rules, as well as whether the facilities are used in accordance with their intended social purposes.
4. Donations for Educational Facilities
Donations for educational facilities can help improve the quality of human resources. These may include school building renovations, laboratory equipment, scholarships, and other forms of educational support.
To qualify for deductions, such expenditures must meet the applicable requirements, including provisions governing eligible recipients and the distribution of donations. Companies should therefore verify the status of educational institutions and ensure that supporting documentation is complete before deducting these expenses from gross income.
5. Donations for Sports Development
Donations for the development of competitive sports may be deducted from gross income if they meet the applicable tax requirements. The funds must be used for sports training, development, or coordination activities through institutions that satisfy the relevant criteria.
Contributions to sports organizations, including the Indonesian National Sports Committee (Komite Olahraga Nasional Indonesia, or KONI) and national sports federations, should be supported by documentation establishing the purpose of the contribution, the recipient, and the use of funds in accordance with applicable requirements.
6. Expenses for Scholarships, Internships, and Training
Expenses for scholarships, internships, and training may qualify as deductions from gross income if they meet the applicable tax requirements and relate to eligible activities. The amounts claimed and the recipients must be properly documented and justifiable.
Scholarships awarded to parties with a special relationship to the company require further review to ensure that the arrangements are reasonable and comply with the applicable tax requirements, as further regulated under Minister of Finance Regulation No. 68/PMK.03/2020.
Scholarships may be granted to a taxpayer’s family members or dependents, such as an employee’s child, provided that the funding genuinely supports broader national education objectives and is not used as a means of providing disguised compensation or employment benefits to the employee concerned. The applicable eligibility criteria and supporting documentation must still be satisfied for the expenditure to qualify as tax-deductible.
Other CSR-Related Expenditures
In addition to the categories outlined above, certain corporate expenditures related to social and environmental responsibility may qualify as tax-deductible expenses, depending on their nature and the regulations governing them.
- Waste management costs. Costs associated with waste prevention, detection, and treatment may be deducted if they are related to business activities and satisfy the 3M principle of earning, collecting, and maintaining income. These expenses must be supported by adequate transaction records and documentation.
- Promotional expenses. CSR activities undertaken for promotional purposes may be classified as promotional expenses if they meet the applicable tax requirements. Under Minister of Finance Regulation No. 02/PMK.03/2010, promotional expenses must be supported by a nominative list containing the required information, including the recipient’s identity, the date, and the amount of the expense. Incomplete documentation may result in the expenses being disallowed as deductions from gross income.
Substantive and Administrative Requirements for Deducting CSR Expenses
To qualify for deductions from gross income, CSR expenses must satisfy the substantive and administrative requirements under applicable tax regulations. Incomplete documentation or non-compliance with the relevant provisions may result in the expenses being disallowed as deductions from gross income.
The key requirements include the following:
- Deduction limit (5%). Total donations and social infrastructure development costs that qualify under the applicable regulations are capped at 5% of the previous tax year's fiscal net income. The calculation is based on fiscal net income, not commercial profit before tax.
- Company's fiscal position. The taxpayer must have recorded positive fiscal net income in the preceding tax year. In addition, expenditures claimed under this tax facility must not result in a fiscal loss in the current tax year.
- Legal status of recipient institutions. Recipient institutions must have a taxpayer identification number (nomor pokok wajib pajak, or NPWP), unless they fall within a category exempt from this requirement under tax regulations.
- Absence of special relationships. Donations must not be made to parties having a special relationship with the donor, as defined under Article 18(4) of the Income Tax Law. This requirement is intended to prevent donations from being used to shift income or obtain unwarranted tax benefits.
- Valid proof of receipt. CSR expenditures must be supported by valid proof of receipt, such as receipts, acknowledgments, or certificates. The documents must contain the required information, including the identities of the donor and recipient, the donation amount, and the date of transfer.
- Valuation of donations in kind. Donations in the form of goods, assets, or property must be valued in accordance with the applicable tax regulations:
- Acquisition cost: For goods that have not previously been depreciated.
- Fiscal book value: For fixed assets that have already been depreciated for tax purposes.
- Cost of goods sold (COGS): For goods manufactured by the company and subsequently donated.
Super Tax Deduction Incentive for Vocational Development
The government provides a Super Tax Deduction facility to encourage companies to participate in vocational education, apprenticeships, and training programs. This incentive is governed by Minister of Finance Regulation No. 128/PMK.010/2019.
Under this facility, eligible corporate taxpayers may claim additional deductions from gross income, bringing the total deduction to as much as 200% of qualifying expenditures. This consists of a 100% deduction for actual expenses and an additional deduction of up to 100%.
Eligible expenses include certain costs associated with workplace practice, apprenticeships, and learning activities, including the provision of training facilities, participant honoraria, and competency certification, subject to the applicable requirements.
To qualify for the incentive, companies must meet the following requirements:
- Relevant competencies: Vocational education, apprenticeship, or training activities must relate to the competency areas listed in the annex to Minister of Finance Regulation No. 128/PMK.010/2019.
- Cooperation agreement: Companies must have a formal cooperation agreement with an eligible educational institution, vocational school, or workforce training center.
- Fiscal certificate (Surat Keterangan Fiskal, or SKF): Companies must hold a valid SKF as evidence of compliance with their tax obligations.
- Fiscal position: The additional deduction cannot be claimed if it would cause the company to incur a fiscal loss in the relevant tax year.
- Notification through OSS: Unlike many other tax incentives, this facility requires companies to submit a notification of their intention to use the Super Tax Deduction through the Online Single Submission (OSS) system, which is integrated with the Directorate General of Taxes (DGT) system.
The facility can reduce a company's taxable income if all requirements are met. Companies should ensure that the expenses claimed meet the eligibility criteria, are supported by adequate documentation, and are recorded in accordance with applicable tax regulations.
Commercial Accounting Treatment and Fiscal Reconciliation
In commercial financial statements, CSR expenditures are recognized as expenses in accordance with the applicable Indonesian Financial Accounting Standards (Standar Akuntansi Keuangan, or SAK). These expenditures may include donations, environmental costs, and social program expenses, regardless of whether all such expenses qualify for tax deductions.
Differences between accounting standards and tax regulations can create discrepancies between commercial profit and taxable income. CSR expenditures that fail to satisfy the 3M principle, fall outside the categories of allowable expenses, exceed the applicable limits, or fail to meet administrative requirements may result in positive fiscal adjustments.
Positive fiscal adjustments are made by adding back non-deductible expenses to commercial profit when calculating taxable income. Consequently, taxable income may be higher than commercial profit before fiscal adjustments.
To minimize the risk of tax adjustments, companies should plan CSR programs at the beginning of the financial year, assess the tax eligibility of each type of expenditure, and ensure that all supporting documentation is complete before filing their annual corporate income tax returns.
Tax Considerations for Foundations Implementing CSR Programs
Companies may channel their CSR programs through foundations. In such cases, the foundations' accounting and tax treatment must also be considered, including the rules governing non-profit entities and their receipt of grants, assistance, and donations. The relevant accounting standard includes ISAK 35, or Interpretation of Financial Accounting Standards No. 35, while the tax treatment must be determined in accordance with applicable regulations.
Grants, assistance, and donations received by a foundation may be exempt from income tax if the applicable requirements are met, including provisions concerning business relationships, ownership, or control between the donor and recipient.
Specifically, for foundations or non-profit entities engaged in education and/or research and development, any surplus may be excluded from taxable income if the applicable requirements are satisfied. One such requirement is that the surplus must be reinvested in the construction or procurement of educational and/or research and development facilities and infrastructure within four years of the surplus being generated.
If the reinvestment requirement is not met within the four-year period, the surplus will be recognized as income and subject to income tax in the tax year in which the surplus was received. Foundations should therefore maintain separate records of the sources and uses of funds, retain supporting expenditure documents, and closely monitor reinvestment deadlines to ensure that the income tax exemption remains applicable.
Comparison of CSR and ESG Tax Incentives in ASEAN
Tax policies can influence the attractiveness of foreign direct investment (FDI) and encourage companies to undertake social responsibility and sustainability initiatives. Comparing tax policies across ASEAN can provide a basis for evaluating the competitiveness of Indonesia’s tax incentives.
Indonesia applies a corporate income tax rate of 22%, while Singapore’s rate stands at 17%. Lower tax rates can give companies greater financial flexibility to fund business operations and sustainability programs. However, a company’s capacity to finance CSR activities depends not only on tax rates, but also on the availability of incentives and regulatory certainty.
Malaysia offers tax incentives for research and development (R&D), including double deductions for qualifying expenditures and investment tax allowances for certain investments. Indonesia also provides a Super Tax Deduction of up to 200% for eligible vocational education and apprenticeship activities under Minister of Finance Regulation No. 128/PMK.010/2019. However, companies must pay close attention to administrative and compliance requirements to make effective use of these incentives.
This comparison suggests that Indonesia should review the procedures for claiming tax incentives and consider expanding the range of expenditures eligible for fiscal benefits. Such policies should be designed with investment competitiveness, legal certainty, and the effectiveness of social and environmental programs in mind.
Expanding the Scope of Deductible CSR Expenses
Restrictions on the types of donations that qualify for deductions from gross income should be reviewed to ensure they reflect current social and environmental needs. Expanding the scope of eligible CSR expenses could be one policy option for encouraging private-sector contributions, provided that clear eligibility criteria and adequate oversight mechanisms are in place.
1. Including Stunting Prevention and Treatment Expenses
Stunting is a public health challenge that requires cross-sectoral intervention. Prevention efforts include improving nutritional intake, providing vitamins and animal-source protein, and expanding access to clean water and sanitation, particularly during the first 1,000 days of life.
The government has established a national strategy to accelerate stunting prevention, involving various stakeholders, including the private sector. CSR programs can support these efforts by providing nutritious food, nutritional assistance, improved sanitation, and other interventions tailored to the needs of target communities.
However, expenditures on food assistance, nutritional supplements, or sanitation support that do not fall within the eligible categories or meet the requirements under Government Regulation No. 93 of 2010 may not qualify for deductions from gross income. Their tax treatment must be assessed based on the nature of the expenditure and the applicable regulations.
To encourage greater private-sector participation, the government should consider revising Government Regulation No. 93 of 2010 to include donations for stunting prevention and treatment. The incentive could be made available subject to clear requirements, including distribution through authorized agencies or institutions, identification of beneficiaries, documentation of fund utilization, and evaluation of program outcomes.
2. Expanding Incentives for Environmental Protection and ESG Initiatives
The application of environmental, social, and governance (ESG) principles is becoming increasingly relevant to corporate risk management and sustainability assessments. Investors and financial institutions may also consider ESG factors when making investment decisions.
Indonesia has established greenhouse gas emissions reduction targets through its Enhanced Nationally Determined Contribution (Enhanced NDC). Achieving these targets requires contributions from the government, businesses, and the public.
Under existing tax regulations, certain environmental expenses may be deducted from gross income if they meet the applicable requirements. Examples include waste treatment costs and specific reserves for activities expressly covered by the regulations. However, expenditures on ecosystem restoration, mangrove planting, biodiversity conservation, and other decarbonization initiatives must be assessed in light of the relevant tax provisions and their relationship to business activities.
The government could consider expanding incentives for qualifying environmental restoration, energy transition, and decarbonization expenditures. Eligibility criteria could include alignment with national environmental targets, activity verification, reporting on the use of funds, and measurable outcomes. This would help ensure that incentives are targeted and accountable.
In addition to broadening the range of eligible expenditures, the government should simplify the application and reporting procedures for green tax incentives. Certification and evaluation requirements should be proportionate to the type of activity and the company's capacity without compromising oversight standards.
3. Expanding Eligibility Criteria for Disaster Relief Donations
Government Regulation No. 93 of 2010 allows donations for disaster relief to be deducted from gross income, subject to the applicable requirements. However, the tax facility is limited to donations for national disasters designated by the central government. As a result, companies face restrictions on claiming tax deductions for assistance provided in response to disasters affecting their areas of operation.
Many natural and non-natural disasters, including flash floods, residential fires, landslides, and forest and land fires, occur at the local or regional level without being designated as national disasters. Nevertheless, these events can cause substantial losses for communities and disrupt local economic activity. In such circumstances, private-sector assistance through CSR programs can help address urgent needs.
However, corporate donations and assistance for disasters that have not been designated as national disasters may not qualify for deductions from gross income. Companies must therefore make positive fiscal adjustments for expenses that fail to meet the applicable tax requirements. This can reduce the incentive for companies to provide assistance during emergencies.
The government should consider revising Government Regulation No. 93 of 2010 to broaden the scope of disaster relief donations eligible for deductions from gross income. The facility should not be limited to national disasters, but could also cover disasters for which an emergency status has been declared by a regional head or which have been recognized by the competent disaster management authority.
Any expansion of the tax facility should be accompanied by oversight mechanisms to prevent misuse. Requirements could include channeling assistance through government agencies or relevant official institutions, such as the National Disaster Management Agency (Badan Nasional Penanggulangan Bencana, or BNPB) and Regional Disaster Management Agencies (Badan Penanggulangan Bencana Daerah, or BPBD), as well as retaining valid supporting documentation. With clear eligibility criteria and adequate oversight, the facility could encourage corporate participation in disaster response while maintaining tax compliance.
Conclusion
CSR is part of a company's strategy for managing community relations, fulfilling environmental responsibilities, and supporting business sustainability. However, the tax deductibility of CSR expenditures remains subject to applicable tax regulations.
Companies should plan their CSR programs with due regard to the Income Tax Law, the HPP Law, Government Regulation No. 93 of 2010, and other relevant regulations. Expenditures must satisfy substantive and administrative requirements to qualify for deductions from gross income. Companies should also ensure that transaction records are complete, recipients meet the applicable legal requirements, and all relevant limits are observed.
At the same time, the government should review the scope of CSR tax incentives to better reflect current social and environmental needs. Expanding incentives for stunting prevention, environmental restoration, energy transition, and decarbonization could be considered, subject to measurable eligibility criteria and adequate oversight mechanisms.
Policies that provide legal certainty, simplify procedures, and direct incentives toward measurable outcomes can encourage greater private-sector participation in supporting social development and achieving national environmental targets.
Legal References
- Law of the Republic of Indonesia Number 40 of 2007 concerning Limited Liability Companies.
- Law of the Republic of Indonesia Number 25 of 2007 concerning Investment.
- Law of the Republic of Indonesia Number 7 of 1983 concerning Income Tax, as amended several times, most recently by Law of the Republic of Indonesia Number 7 of 2021 concerning Harmonization of Tax Regulations.
- Government Regulation Number 93 of 2010 concerning Donations for National Disaster Relief, Research and Development, Educational Facilities, and Sports Development, and Expenditures for Social Infrastructure Development That Are Deductible from Gross Income.
- Government Regulation Number 29 of 2020 concerning Income Tax Facilities in Connection with the Handling of Coronavirus Disease 2019 (COVID-19).
- Minister of Finance Regulation Number 114 of 2025 concerning Exemptions from Income Tax Objects for Assistance or Donations, and Gifts.
- Minister of Finance Regulation Number 68/PMK.03/2020 concerning the Income Tax Treatment of Scholarships That Meet Certain Requirements and Surpluses Received or Earned by Non-Profit Bodies or Institutions Engaged in Education and/or Research and Development That Are Excluded from Income Tax Objects.
- Minister of Finance Regulation Number 128/PMK.010/2019 concerning Gross Income Deductions for the Provision of Workplace Practice, Apprenticeship, and/or Learning Activities for the Training and Development of Human Resources in Specific Competency Areas.
- Minister of Finance Regulation Number 02/PMK.03/2010 concerning Promotional Expenses Deductible from Gross Income.
Writer: Arianta John Bangun | Editor: Thomas Rizal