PIT 1 to 8

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Chapter 1: Introduction to Taxation

The Principles of Indonesian Taxation by Nil Sonata SE, MH

Learning Objectives

• Describe definition of tax, its type and other contribution• Identify tax law and its position

• Understand the interpretation on tax law

• Differentiate kind of taxes and identify criteria for a tax structure

• Recognize when tax is due and its ending

• Discuss the tax avoidance and evasion

Introduction to Taxation

Definition of Tax:

• A mandatory assessment levied by a government to their taxpayers

• based on the law

• without indicating to any direct compensation• to finance governmental activities and also to regulate economic sector.

Tax versus Retribution

Tax:

• Central & Local Government Tax

• Based on Law

• No direct compensation

• To finance government activities & to regulate economics sector

Retribution:

• Local Government Tax

• Based on Law

• Any direct compensation

Tax Law and its Position

• Tax Law – the law that gives an authorization to the government to take

individual’s wealth and gives back to the society through the state treasury.

• Tax law deals with the relationship between the citizens with their country -

the tax law is under public law

Interpretation on Tax law• Grammatical: based on the whole wording of provision

• Authentic: based on what has been explained by the provision of law

• Systematical: based on the other provision on the law or from another law

• Historical: based on the historical of law

Nature of Tax law

Tax Law Basis:

• Material Tax Law: condition, tax object and subject, due and ending of tax, ->

income tax law, VAT law etc

• Formal Tax Law: procedures, tax right and obligation etc -> general provision

Classification basis• Direct Tax: the imposition directly to the related taxpayers -> income tax

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• Indirect Tax: the imposition can be shifted to the other taxpayers -> VAT

Typical basis

• Subjective Tax: the imposition to the condition of taxpayers as tax subject ->

Income Tax

• Objective Tax: the imposition to the tax object disregard condition of

taxpayers-> VATCollector basis

• Central Tax: tax by the central government -> Income Tax, VAT etc

• Local Tax: tax by the local government-> tax on vehicles etc

Criteria for a Tax Structure

Adam Smith’s opinion:

• Equality: fairness and ability to pay

• Certainty: clearness and certainty

• Convenience: pay as you earn

• Economy: lower cost on assessment

Fairness in Tax Law

• Horizontal Fairness: Tax imposed to the similar income received by any

taxpayers

• Vertical Fairness: Similar tax imposed on to the similar condition of any

taxpayers

Tax Imposition Theory

• Insurance theory: tax is an insurance premium

• Interest theory: tax is paid based on the protection given by the state

• Burden theory: tax is paid based on taxpayers burden

• Dedication theory: tax is a dedication to the state

• Buying power theory: the function of tax is economic regulation

Tax Imposition Theory

• Domicile Basis: tax is imposed to all taxpayers based on their domicile

• Nationality Basis: tax is imposed to all citizen disregard the domicile

• Sources Basis: tax is imposed by the source country

Tax Imposition Method

• Real Method: tax is imposed on the real tax object -> done on the end of tax

year.• Fictive Method: tax is imposed based on the assumption -> done on during the

tax year.

• Combination Method: combination of the real and fictive method. In the early

year, tax is paid based the assumption and the over or underpayment is settled

the end of year.

Tax Assessment System

• Self Assessment: Taxpayers have to pay and file the return by their selves.

• Semi Official Assessment: the tax office and taxpayers work together in

assessment.

• Full Official Assessment: the tax office will issue assessment to be paid by thetaxpayers.

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Structure of Tax Rates

• Proportional Rate: single rate on any amount -> VAT rate

• Progressive Rate: multilevel rate. higher rate on higher amount -> income tax

rate.

When Tax is Due and its Ending• Tax is due based on law with and/or without assessment

• Tax is ending because of:

– Payment

– Compensation

– expire of statute limitation

– write-off

– exemption

Tax Avoidance and Evasion

• Tax avoidance is an effort to pay fewer tax or not to pay tax without any

action to breach of tax law• Tax evasion is an effort to pay fewer tax or not to pay tax with any action to

breach of tax law

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Chapter 2:

General Provision & Tax Procedures

Learning Objectives

• Describe definition, function and procedures to obtain Tax ID

• Understand extension to pay tax• Identify annual tax return and related penalty

• Describe definition on assessment letters

• Explain the bookkeeping obligation

• Understand tax audits and investigation

• Explain procedures to file objection and appeal

• Explain tax collection procedures

Introduction to General Provision and Tax Procedures

• Indonesian tax system is inherited from the Netherland Indies Government

such as Stamp Duty Provision 1921 etc• Indonesian tax reform 1984 consist of General Provision & Tax Procedures

(KUP), Income Tax (PPh), Value Added Tax (VAT) etc

Some Definition on General Provision

• Tax payer – individual or entity having tax obligation

• Entity – A group of people or capital conducting business or not including

corporation etc in whatever name or form

• Taxable period – equal to a calendar month or any period not exceed than 3

calendar month stipulated by MOF

• Taxable year – a calendar year or another decided accounting year

• Fraction of taxable year – a part of taxable year

• Tax payable – tax should be paid in time

• Tax bearer – tax payer responsible to pay tax including representative

Taxable Year

• Taxable year - difference with a calendar year should have an approval from

DGT

• Decided taxable year - the book year: 01/07/08 -30/06/09 -> taxable year 2008

since first 6 month within 2008

• Decided taxable year - the book year: 01/04/08 – 31/03/09 -> taxable year 2008 since most month within 2008

• Decided taxable year - the book year: 01/10/08 – 30/09/09 -> taxable year

2009 since most month within 2009

Taxpayer Identification Number (NPWP)

• Tax ID No – Self identification no as a mean of tax administration for

exercising tax rights and obligation

• Registration – the following subjects should register to the local tax office:

– Individual or entity during establishment time or when conducting a

business

– Employee whose income exceeding not taxable income limit

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• Place for registration – the domicile for individual and as for the firm, the

place where business are execute

• Tax ID number consist of 15 digits:

01.234.567.8.901.000

The 1st of 2 digits – taxpayer class

The 2nd of 6 digits – number The 3rd of 1 digits – checking code

The 4th of 3 digits – tax office code

The 5th of 3 digits – branch or central

Tax ID Deregistration

• Tax ID can be revoked with the following reasons:

– The death for individual

– Leaving Indonesia for individual

– Officially dissolution of company

VAT-able Firm (PKP)

• Like tax ID, PKP is a self identification no as a mean of tax administration for

exercising VAT rights and obligation

• Registration – the following subject should register PKP to the local tax office:

– Individual or entity whose income exceeding to certain amount of sales

– Individual or entity who choose to be PKP

Penalty

Person who intentionally do the following thing:

• Un-registration and/or abuse of NPWP and PKP

• Not file tax return

• File incorrect and/or incomplete tax return

• Refuse to be audited

• Provide incorrect bookkeeping, document etc and/or refuse to provide it

• Not performed any bookkeeping

• Not pay on tax that has been withheld

When it can lead a loss of state revenue, can be subjected to penalty such as 6 years in

prison

Dateline of Payment

• Income tax 21, 22 on certain body, 23/26 should be paid on 10 of the

following month• Income tax 25 & VAT should be paid on 15 of the following month

• Income tax 22 on import & VAT and Sales Tax on luxury goods should be

paid on the time of duty being paid or on import settlement when duty is

deferred

• Income tax 22 Custom and Excise & VAT and sales tax on luxury goods

should be paid one day after tax being withheld

Dateline of Payment

• Income tax 22 of State Treasury should be paid on the same day of

commercial payment

• Income tax 22 of Pertamina should be paid before Delivery Order being issued

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• VAT and Sales tax of the State Treasury should be paid on 7 of the following

month

Installment on Tax Liability

• Installment can be proposed on assessment letter

• Submitted 15 days prior to the due date by explaining the reason, amount of tax and supported by evidence

• The approval is issued within 10 days after submission unless considered

being approved

Tax Returns

• Tax Returns – A report to declare a tax calculation or payment, tax object or

not, assets and liability according to the tax law

• Function- to report tax due, withholding tax, prepaid tax for a certain tax

period

•

Taxpayers should take the form by their self and file it to the tax officeincluding send by mailing

The Deadline of Reporting

• Monthly tax returns including VAT should be filed by 20th of the following

month except import tax art 22 on import and state treasury are on 14th of the

following month

• Annual Corporate Income tax returns should be filed on 31st April of the

following year. As for Individual and Employee income tax should be filed by

30th March of the following year

Revise Tax Returns• Tax Returns can be revised within 2 years after the end of tax period with

considering the following condition:

– Tax audits not yet done so for the underpayment tax will be subject to

2% interest penalty.

– Tax audit has been done so the underpayment tax will be subject to

two times.

• Over 2 year provided that the assessment has not been issued, tax returns still

can be revised with required of following condition:

– Tax should be paid to become bigger or

–

Tax losses become smaller or – Asset become bigger or

– Capital become bigger

Please note that the underpayment will be subject to 50%

• Over 2 years of the end of tax period and provided that the tax audit has not

yet done tax returns still can be revised when having an assessment from a tax

objection or tax appeal which is certifying a different tax loss carry forward.

The revision should be made within three months of the date of assessment

Assessment Letter

• Assessment letter – mentioning a tax covering tax under and over payment,additional on tax underpayment etc

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• Tax underpayment – mentioning principal tax, tax credit, shortage of payment

on principal, administrative sanction and the remainder that should be paid

• Tax overpayment – stipulating an excess of credit tax over the tax payable

• Zero Tax Assessment - stipulating that the tax credit are equal to the tax

payable

Tax Collection Letter

A letter collects a tax and administration penalty. This kind of letter issued for the

following condition:

• When current income tax is underpaid or not yet paid

• Tax payers imposed by interest penalty and fine

• VAT-able firm not issue VAT invoice or issue but over the due time or issue

an incomplete invoice

Bookkeeping

•

Definition- a recording process in good manner to gather financial informationcovering assets, liabilities, capital, income and cost including acquisition cost,

delivery goods and services which is closed by compiling financial statements

in the form of BS and P/L at the end of tax year

• Taxpayer both individual and firm qualify to conduct a bookkeeping with the

sales or turnover amount exceeding the certain amount

Some consideration:

• Good faith and reflecting real condition or business activities

• Performed in Indonesia, in Latin letters, Arabic numbers, IDR denomination,

Indonesian language or other foreign under MOF approval

• Consistency and accrual or cash basis• Any change in method and or tax year should have a DGT approval

• Consisting of assets, liabilities, income and cost as well as sales and purchase

so that the amount of tax payable can be calculated

Tax Audits

• Definition- A series of activities to seek, gather, process data and other

information to test compliance on the tax obligation or other purposes in line

with the implementation of tax law provisions

• The example of other purposes are:

–

Deregistration of Tax ID– Tax Refund and objection

Objection

• When any different opinion on an assessment, the taxpayers may file an

objection

• The objection submitted by written within 3 month after the date of

assessment

• An objection represent one assessment which mentioning objection amount

also clear reason underlying the objection

• Taxpayers should pay the existing tax payable prior to the objection

submission with minimum amount that agreed on the closing tax audits

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• The result should be finalized within 12 months after the date of objection

letter receipt

• The result may be accepted in full or half amount or rejected it or even create

any addition tax liabilities

Appeal• When taxpayer still not satisfied with the result of objection then the taxpayers

may file an appeal

• The appeal submitted by written within 3 month after the date of objection

decision and attached with the copy of decision letter

• When the decision of appeal showing rejected or accepted in half amount so

the underpayment is subject to 100% but when accepted a full amount so the

overpayment will be added by interest 2% per month

Investigation

•

Definition - a series of activities conducted by Tax Investigator to find andcollect evidence in order to uncover a criminal offence in the field of taxation

and to find the suspect

• The investigation is conducted according to the criminal law (KUHAP) by an

investigator working on DGT which has the authorization to do investigation

Tax Sanction

• Tax sanction:

– Tax Administration

– Tax Criminal

• Tax Administration:– Penalty- certain amount and percentage

– Interest 2% per month maximum 24 months

– Additional – percentage

• Tax Criminal

– Imprisonment for certain period

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Chapter 3:

Introduction to Income Tax

Learning Objectives

• Describe definition of tax subject

• Differentiate tax object and not tax object• Identify tax object on Permanent Establishment

• Differentiate deductible and non deductible expenses

• Understand tax depreciation and amortization

• Recognize acquisition cost, inventory etc

Tax Subject

• Definition – any party according to the law that can be taxed

• Tax subject consist of:

– Individual

– Inheritance not yet divided as a unit, in lieu of rightful heirs

– Statutory body – Permanent establishment

• Tax Subject can be divided:

– domestic tax subject

– non-domestic tax subject

• Tax subject versus non tax subject

• Tax subjective obligation

Domestic Tax Subject

• Individual residing in Indonesia or present in Indonesia for more than 183

days within any 12 month period, or any individual present in Indonesia

within any tax year and intending to reside in Indonesia

• Estate not yet divided as a unit constitutes a substituted tax subject in lieu of

rightful parties, namely heirs. The appointment is intended to ensure that the

taxing right

• Statutory body – a group of people or capital as a unit undertaking or not

undertaking business

• Permanent establishment – business entities used by individual not reside or

present in Indonesia for less than 183 days within any 12 month period, or

statutory bodies not established and not domicile in Indonesia to undertake

business or activities in Indonesia which can be any form like place of

management, branches, representative offices, factories, workshops or statutory bodies acting as dependent agent, employee etc

Non Domestic Tax Subject

• Individual not reside in Indonesia or present in Indonesia for less than 183

days within any 12 month period

• Statutory body not established and not domiciled present in Indonesia which

undertake business or activities through permanents establishment in

Indonesia

• Statutory body not established and not domiciled present in Indonesia which

can receive or earn income from Indonesia not resulting from

undertaking business or activities through permanents establishment inIndonesia

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Tax Subjective Obligation

• Definition - An obligation attached to the relevant tax subject that can not be

shifted to another tax objective

• Individual residing in Indonesia - qualify to the obligation of subjective tax

• Individual not reside in Indonesia – qualify the tax subjective obligation –

when there is any economic relation with Indonesia

Tax subject Tax Subjective

Obligation - Started

Tax Subjective

Obligation - Ended

Local Individual • Born

• Reside or intend

to live in

Indonesia

• Pass away

• Leave Indonesia

permanently

Foreign Individual • Present in

Indonesia more

than 183 days

• Pass away

• Leave Indonesia

permanentlyInheritance not yet

divided

• Occurrence of

such undivided

inheritance

• Divided to the

entitled heirs

Domestic firm • Established

• Domicile

• On time of its

liquidation

• When it is no

longer domiciled

in Indonesia

Non Domestic firm

through PE

• Perform business

in Indonesiathrough PE

• No longer

perform throughPE

Non Domestic firm not

through PE

• Received income

from Indonesia

• No longer

received income

from Indonesia

Non Tax Subject

• A diplomatic mission

• The officials of diplomatic or other foreign officials and individuals who work

for and stay with them at their official residence, provided that they are not

Indonesian citizens, nor receive income other than from the performance of

their official duty in Indonesia, and the foreign state grants reciprocaltreatment;

• International organizations as determined by MOF decree provided that:

– Indonesia is a member of the international organization;

– They do not conduct business or engage in other activities to derive

income in Indonesia, except providing loan to government the fund of

which comes from member contribution;

• The officials of the international organization representative as determined by

MOF Decree, provided they are not Indonesian citizens and do not conduct

business or engage in activities or other employment to derive income in

Indonesia.

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Tax Object

• Definition - Any increase in economic capability received or accrued by a

Taxpayer, originating from Indonesia as well as from offshore, in whatever

name or form, that can be used to consume or to increase the wealth of the

Taxpayer.

• in broad sense that the tax shall be imposed on any increase in economiccapability received or earned by a Taxpayer from whatever source and which

can be used for consumption or for increasing the wealth of the Taxpayer

• Based on flow of the increasing of economic capability, income could be

classified into:

– income from employment and independent work, such as salary etc

– income derived by a physician, notary, actuary, accountant, lawyer, etc

– income from conducting business and activities-income from capital in

the form of movable or immovable property, such as royalty, gain on

sales of property, or rights not used for the business, etc

– Other income, such as discharge of indebtedness, gift, etc.

• Compensation or other remuneration received in respect of employment or service such as salary or other remuneration, except where stipulated

otherwise in this law;

• Lottery prizes or gifts in respect of employment or other activities and awards;

• Business profit;

• Gains from the sale or transfer of property, including:

– gains from the transfer of property to a corporation and other entities in

exchange for shares or capital contribution;

– gains accrued by a corporation or other entities from the transfer of

property to its shareholders, partners or members;

– gains from a liquidation, merger, consolidation, split-up or acquisition;

– gains from the transfer of property in the form of grant etc except when

given to relatives within one degree of direct lineage, or to religious or

other social entities or to small businesses including cooperatives as

determined by MOF provided that two parties do not have any

business relation, ownership nor control;

• Refunds of tax payments already deducted as expenses;

• Interest, including premiums, discounts and compensation for loan repayment

guarantees;

• Dividends, in whatever name and form, including dividends paid by an

insurance company to policyholders and the distribution of net income by a

cooperative;• Royalties, rents and other income from the use of property;

• Annuities;

• gains from discharge of indebtedness, except up to a certain amount stipulated

by Government Regulation;

• gains from foreign exchange and from revaluation of assets;

• Insurance premiums;

Non Tax Object

• Contribution received or accrued by an association from its members who are

Taxpayers engaged in business or independent services;

• An increase in net wealth from income which has not been taxed.

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• Aid, donation, including zakat received by amil zakat board or other amil

zakat institutions approved by the government and eligible zakat recipients;

• Gifts received by relatives within one degree of direct lineage and by religious,

educational or social organizations, or by small businesses including

cooperatives determined by the MOF; provided that there is not any business,

work, ownership nor control relationship between the parties concerned;• Assets including cash received by an entity in exchange for shares or capital

contribution;

• Remuneration in the form of BIK in respect of employment or services

received from a Taxpayer or the Government;

• Payments by an insurance company to an individual in connection with health,

accident, life, or education insurance;

• Dividends or distribution of profit received by resident limited corporations,

cooperatives, state-owned or local state-owned companies through ownership

in enterprises established and domiciled in Indonesia, provided that:

– dividends are paid out from retained earnings;

– limited corporations and state owned companies and local state-ownedcompanies receiving the dividends must own at least 25% of the total

paid-in capital and must have an active business in addition to the

ownership;

• Contribution received or accrued by a pension fund approved by the MOF

either paid by an employer or an employee;

• Income from capital investment of the pension fund referred to in sub

paragraph g in certain sectors as determined by the MOF Decree;

• Distribution of profit received by a member of a limited partnership whose

capital does not consists of shares, partnership, association etc

• interest on bonds received or accrued by an investment fund company for the

first five years beginning from the establishment of the company or the

granting of business license;

• income received or accrued by a venture-capital company in the form of profit

distribution of a joint-venture company established and conducting business or

engaged in activities in Indonesia, provided that:

– the investor is a small or medium-sized enterprise or engaged in

activities in business sectors determined by the MOF decree; and

– the invitee's shares are not traded in the stock exchange in Indonesia.

Tax Object on PE’s Income

• income from its businesses or activities and from its owned or controlled properties;

• income of the head office from businesses or activities, sales of goods, or

furnishing services in Indonesia which are similar to those undertaken by the

permanent establishment in Indonesia;

• income referred to in Article 26 received or accrued by the head office

provided that the properties or activities giving rise to the aforesaid income is

effectively connected with a PE

Determination of PE’s profit

• Administrative expenses incurred by the head office for the purpose of the

permanent establishment is deductible subject to limitations regulated by the

DGT;• the following payments to its head office are not deductible:

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– royalties or other payments paid in respect of the use of properties,

patents, or other rights;

– payments in respect of management services or other services;

– interest, except in banking business;

• payments referred to in subparagraph b received or accrued from the head

office shall not be included in taxable object, except interest in banking business

Deductible Expenses

• Expenses to earn, to collect and to secure income, including cost of materials,

costs in connection with employment or services including wages, salaries,

honoraria, bonuses, gratuities and remuneration in the form of money, interest,

rents, royalties, travel expenses, waste processing expenses, insurance

premiums, administrative expenses and taxes other than income tax;

• Depreciation of tangible asset and amortization of rights and other

expenditures which have useful life of more than 1 (one) year referred to in

Article 11 and Article 11A;• Contributions to a pension fund approved by the Minister of Finance;

• Losses incurred from the sale or transfer of properties owned and used in

business or used for the purpose of earning, collecting and securing income;

• losses from foreign exchange;

• costs related to research and development carried out in Indonesia;

• scholarships, apprenticeships and training expenses;

• debts which are actually uncollectible, provided that:

• it has been charged to commercial financial statement;

• the case has been filed to court or BUPLN or there is a written

agreement on the discharge of indebtedness between debtor and

creditor;

• it has been published in media; and

• The Taxpayer shall submit the list of bad debt to the Directorate

General of Taxes, the procedure of which shall be stipulated further by

the Director General of Taxes Decree.

Loss Carry Forward

• In 2001, PT XYZ suffers a tax loss of IDR 1,200,000,000 In the following 5

(five) years, the taxable profit/loss of PT XYZ is as follows:

– 2002: tax profit IDR 200.000.000

– 2003: tax loss (IDR 300.000.000) – 2004: tax profit — zero —

– 2005: tax profit IDR100.000.000

– 2006: tax profit IDR 800.000.000

• Calculation of the loss is as follows:

– Tax loss in 2001 (IDR 1.200.000.000,00)

– Tax profit in 2002 IDR 200.000.000,00 (+)

– Balance of tax loss from 2001 (IDR1.000.000.000,00)

– Balance of tax loss from 2001 (IDR1.000.000.000)

– Tax loss in 2003 (IDR 300.000.000) – Balance of tax loss from 2001 (IDR1.000.000.000)

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– Tax profit in 2004 0 (+)

– Balance of tax loss from 2001 (IDR1.000.000.000)

– Tax profit in 2005 IDR 100.000.000 (+)

– Balance of tax loss from 2001 (IDR 900.000.000)

– Tax profit in 2006 IDR 800.000.000 (+)

– Balance of tax loss from 2001 (IDR 100.000.000)

• The balance of tax loss from 2001 amounting to IDR 100,000,000 in the year

2006 may not be offset against tax profit in year 2007 since the 5 year period

has already expired; however, the tax loss 2006 amounting to IDR

300,000,000.00 may be offset against tax profit in 2007 and 2008, because the

5 year period for this loss commences in 2004 and finishes at the end of year

2008.

Depreciation

• Definition – Charging allocation in order to earn, collect and secure income

on expenditures to acquire tangible property which have a useful life of morethan 1 (one) year.

• Land and right can not be depreciated except if the land is used by the

company or owned to earn income provided that the value of the land

decreases through the business activities, for instance, the land is used by a

roof tile manufacturer, ceramics manufacturer or a brick manufacturer

Description Commence Ending

Tangible Assets in the month expenditures are

incurred

by the end of the useful

life

Assets in progress in the month when the

process is completed

by the end of the useful

life

Class Useful Life Straight Lines Double Declining

Non Building

Group

Group 1Group 2

Group 3

Group 4

2 years

4 years6 years

8 years

50%

25%16,7%

12,5%

100%

50%33,3%

25%

Building

Permanent

Non Permanent

10 years

5 years

10%

20%

Amortization

• Definition – Charging allocation in order to earn, collect and secure income onexpenditures to acquire intangible property and other expenditure including

cost of extending right to build, right to cultivates, and right to use that has a

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useful life of more than one year which have a useful life of more than 1 (one)

year.

Non Deductible Expense

• Distribution of profit in whatever name or form, such as dividends, including

dividends paid by an insurance company to policyholders, and any distributionof the surplus by a cooperative

• Expenses charged or incurred for the personal benefit of shareholders, partners

or members

• Formation or accumulation of reserves, except for reserve for bad debt of a

bank or a finance lease, reserves in an insurance business, and reserves for

reclamation costs in general mining, the terms and conditions of which shall

be stipulated by the MOF Decree

• Insurance premiums for health, accident, life, dual purpose, and education

insurance which are paid by an individual Taxpayer, except those paid by an

employer where premiums are treated as income of the Taxpayer insurance

premiums for health, accident, life, dual purpose, and education insurancewhich are paid by an individual Taxpayer, except those paid by an employer

where premiums are treated as income of the Taxpayer

• Consideration or remuneration related to employment or services given in the

form of a benefit in kind, except provision of food and beverages for

employees or consideration or remuneration given in the form of a benefit in

kind in certain regions and in connection with employment as stipulated by the

Minister of Finance Decree

• Excessive compensation paid to shareholders or other associated parties as a

consideration for work performed;

• Gifts, aid or donations, and inheritances referred to in Article 4 paragraph (3)

subparagraph a and subparagraph b, except zakat on income actually paid by a

Moslem individual Taxpayer and or a resident Taxpayer other than individual

owned by a Moslem to an amil zakat board or other amil zakat institutions

established or approved by the government

• Income tax

• Costs incurred for the personal benefit of a Taxpayer or his dependents;

• Salaries paid to a member of an association, firma, or limited partnership the

capital of which does not consist of stocks;

• Administrative penalties in the form of interest, fines, and surcharges, as well

as criminal penalties in the form of fines imposed pursuant to the tax laws.

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Chapter 4:

Income Tax Article 21/26

Withholding Tax Article 21

• Definition – tax on income like salaries and other remuneration etc derived byindividual taxpayer in respect of employment, services and other activities

• The term “other remuneration” means remuneration in whatever form other

than salaries, wages, allowances, and honorariums or other remuneration such as

bonus, profits share etc

• Withholder of Withholding (WTH) tax 21:

– Employers: individual, company, PE etc

– Government treasurers: central and local

– Pension funds, JAMSOSTEK etc

– Foundation, institution, association, committee, organization including

international organization which have been determined based on theDecree of MOF

Tax Subject

• Employee: permanent and non permanent

• Artists, sportsman, lecturer, service, project management, the race participants,

officials outside the insurance office, a distributor MLM / direct selling, and

similar activities;

• Pension recipient, former employees, including private persons or heirs who

receive the old savings fund and old guaranteed fund

• Expert: lawyer, accountant, architect, doctor, consultant, notary, assessors, and

actuaries

Non Tax Subject

• Officials and representatives of diplomatic or consular officials of foreign

countries, and those who work in and live with them, provided that:

– Not a citizen of Indonesia, and;

– In Indonesia does not receive revenue or other outside position or job and

those countries provide reciprocal treatment;

• Official representatives of international organizations established by the Decree of

the MOF during the non-Indonesian citizens, and not to run the business or activity or other work to earn in Indonesia

Tax Object

• All Income is received or obtained by employees or pension recipients in any form

of benefit in cash both regular or irregular

• Income is received or obtained by the recipient or employee, former employee or

pensions like leave allowance, bonus, etc or other similar income that are not

fixed.

• All wages received or obtained by non permanent employee including training

and internship

• Old savings fund and old guaranteed fund and other similar payment inconnection with the working termination

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• Honorarium, gift or award with the name and in any form, commissions,

scholarships, and other payments as a reward in connection with the work,

services, and activities undertaken by the resident taxpayer:

– Expert: Lawyer, accountant, architect, doctor, Consultant, notary,

assessors, and actuaries – Musician, host, singer, comedian, stars, director, crew and other artists;

– Sportswear;

– Advisor, teacher, instructor, moderator etc and author, researcher and

translator;

– Service in all areas including engineering and computer application

systems, telecommunications, electronics, photography, social and

economic;

– Ad agency;

– Project managers, service to a committee, and the hearing or meeting;

– Race participant – Foreign insurance agencies;

– Participants in the education, training, and not internship not as

employees or prospective employees;

– Distributor company multilevel marketing or direct selling and other

similar activities.

• Salaries and other remuneration that received by the State Officers and

pension and other benefits-benefits that are associated with the pension received

by pensioners, including widows or widower and / or their children.

Non Tax Objects

• Payments from insurance company health insurance, accident insurance, life

insurance, dual-purpose insurance, insurance and scholarships.

• BIK and other benefits in any form provided by the taxpayers or the Government,

unless provided by Non Taxpayer excluding Government, Taxpayer which

imposed by final tax and which its income subject to the specific norms (deemed

profit).

• Pension contribution paid to the pension fund under approval of MOF and the old

guarantee contribution to Jamsostek which paid by the employers.

• Zakat received by entitled individual from amil zakat institutions or entities

established or approved by the Government.

Other Rules

• Tax withholder required to provide monthly WTH slip at the time of taxes

being withheld as for annual WTH slim within two month after end of tax year

• When employees resign or retire on calendar year, the WTH slip is given by

the employer within one month after the employee resigned or retired

• Income recipients must submit a statement letter to the Tax withholder which

states the number of dependent family at the beginning of calendar year or at the

beginning to become residence taxpayer.

• Non taxable income is a certain amount that should be deducted from the

WTH Tax 21 computation

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• Occupation support is cost to earn, to collect and to secure income for the

individual that can be deducted from income of permanent employee income who

work disregard holding any function position or not with maximum 5% or IDR

500.000 per month or IDR 6.000.000.

• Pension fund limit with maximum 5% or IDR 200.000 per month or IDR

2.400.000 per year.

Employee and Pension Expense

Description Employee Expense max

5% or max

Pension max 5% or max

Max per month IDR 500.000 IDR 200.000

Max per year IDR 6.000.000 IDR 2.400.000

Progressive Tax Rates on Individual Tax

Rate Taxable Income Level (IDR)

5% 0 to 50 million

15% Above 50 million to 250 million

25% Above 250 million to 500 million

30% Above 500 million

Non Taxable Income for Individual Tax

Status Taxable Income Level (IDR)

S/0 15.840.000

M/0 17.160.000

M/1 18.480.000

M/2 19.800.000

M/3 21.120.000

How to compute WTH Tax 21 – General Rules

• Permanent Employee:

– Sum of all gross income by monthly basis like salary, taxableallowance including assurance etc

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– Calculate net income per month by deduction the gross income with

the following deduction:

• Employment expense

• Contribution related with salary paid to pension fund which its

establishment approve by MOF

– Calculate annual net income by multiple monthly net income with12 incase that subjective tax obligation of taxpayer has been exist in the

beginning of year but start working after January so the monthly net

income times by amount of months on that year.

– Calculate taxable income by deduction annual net income with non

taxable income

– Calculate annual withholding tax article 21 by computing taxable

income with progressive tax rate article 17 of income tax law

– Calculate monthly withholding tax article 21 by annual withholding

tax article 21 with 12

Example of Computation WHT Tax 21/26 continue

Computation of WTH Tax 21 of permanent Employee

Monthly Salary Session

Tommy worked on the company PT Mutiara Raya with Salary IDR 2,500,000 and to

pay a pension contribution of IDR 100.000 Tommy married but not have any

children. Income Tax Calculations Article 21 is as follows

Salary per month IDR 2.500.000

Deduction

Employment expense 5% x IDR 2.500.000 = IDR 125.000

Pension fund IDR 100.000 IDR 225.000

Net income per month IDR 2.275.000

Net income per annual IDR 27.300.000

Non taxable income – annual

Taxpayer IDR 15.840.000

Add married IDR 1.320.000 IDR 17.160.000

Taxable income per annual IDR 10.140.000

WTH Tax 21 Liability 5% x IDR 10.440.000 IDR 507.000

WTH Tax 21 per month IDR 507.000 ; 12 months IDR 42.250

When any payment of assurance to Jamsostek and Pension Fund

Dennis works for PT Jakarta Transport (JT), married with no children, have monthly

salary of IDR 2,000,000. The company is a participant of Jamsostek program and pay

0.5% premium of working accident and 0.3% death assurance for their employees.

The company also pays old fund assurance 3.7% of salary per month and 2% paid as

employee contribution. In addition the company pay pension contribution IDR

100.000 each month to the pension funds that its establishment has been approved by

MOF and as for Dennis pays IDR 50.000 as part of employee contribution:

Salary per month IDR 2.000.000

0.5% premium of working accident IDR 10.0000.3% death assurance IDR 6.000

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Gross Income IDR 2.016.000

Deduction

Occupational Support 5% x IDR 1.500.000 = IDR 100.800

old fund assurance IDR 50.000

Pension fund IDR 40.000 IDR 190.800

Net income per month IDR 1.825.200 Net income per annual : 12 x IDR 1.850.200 IDR 21.902.400





Rounding IDR 4.742.000


WTH Tax 21 per month IDR 237.100 ; 12 IDR 19.758

Weekly Salaries

Andy, married with one children, works at PT Jakarta Transport (JT) receives weeklysalaries of IDR 600.000:

Salary a month: 4 x IDR 600.000 IDR 2.400.000

Deduction


Net Income a month IDR 2.280.000

Net Income a year 12 x IDR 2.280.000 IDR 27.360.000



Add for married ` DR 1.320.000

Add for 1 child IDR 1.320.000 IDR 18.480.000


WTH Tax 21 Liability 5% x IDR 8.880.00 = IDR 444.000

WTH Tax 21 per month IDR 444.000 : 12 = IDR 37.000

WTH Tax 21 per month IDR 444.000 : 4 = IDR 9.250

When having bonus or other income

David (unmarried) works as the company PT Indonesia International and earns IDR

2,000,000 a month. In the year concerned, he receives a bonus IDR 5.000.000. Every

month, David pays a contribution of IDR 60.000 to the pension fund approved by

MOF.Income Tax Calculations Article 21 on bonus is as follows

Annual salary IDR 2.000.000 x 12 IDR 24.000.000

Bonus IDR 5.000.000

Annual gross income IDR 29.000.000

Deduction

Employment exp 5% x IDR 29.000.000 = IDR 1.450.000

Annual pension fund 12 x IDR 60.000 = IDR 720.000 IDR 2.170.000

Annual net income IDR 26.830.000



Taxable income per annual IDR 10.990.000WTH Tax 21 Liability 5% x IDR 10.990.000 = IDR 549.200

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WTH Tax 21 per month IDR 90.000 ; 12 months IDR 43.500

When subjective tax obligation has been begun in the beginning of year but

starting to work after the beginning of yearJimmy has been working at PT Indonesia International as a permanent employee

since September 2009. Jimmy married with no children. His salary is IDR 6.000,000

and the pension contribution paid every month is IDR 150.000. The calculation of the

WTH 21 are as follows:

Monthly salary IDR 6.000.000

Deduction

Employment exp 5% x IDR 6.000.000 = IDR 300.000

Pension contribution = IDR 150.000 IDR 450.000

Monthly net income IDR 5.550.000

Annual net income 4 x IDR 5.550.000 IDR 22.200.000 Non taxable income – annual




WTH Tax 21 Liability 5% x IDR 5.040.000 = IDR 252.000

Monthly WTH Tax 21 IDR 252.000 : 4 = IDR 63.000

Foreign Taxpayer

Steven is an expatriate married with no children join with PT Indonesian Mining

Corporation with the schedule from September 2009 to August 2010. During 2009,

his salary is IDR 60.000.000

Salary for 4 months 4 x IDR 60.000.000 IDR 240.000.000

Deduction


Max allowed 4 x IDR 500.000 = IDR 2.000.000

Net income 4 months IDR 238.000.000

Annual net income 12/4 x IDR 238.000.000 IDR 714.000.000



Add married IDR 1.320.000 IDR 17.160.000Taxable income per annual IDR 696.840.000

WTH Tax 21 Liability

5% x IDR 50.000.000 = IDR 2.500.000

15% x IDR 200.000.000 = IDR 30.000.000

25% x IDR 250.000.000 = IDR 62.500.000

30% x IDR 196.840.000 = IDR 59.052.000 IDR 154.052.000

WTH Tax 21 for 2009: 4/12 x IDR 154.052.000 = IDR 51.350.666

Monthly WTH Tax 21 monthly: IDR 51.350.666 x ¼ = IDR 12.837.666

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When any back pay payment:

Tommy as shown in previous example, in June 2009, received salary increase so that

his salary becomes IDR 3.500.000 a month and be in effect retroactively since

January 2009. Consequently he receives back pay in amount of IDR 5.000.000 (the

underpaid salary from January to May 2009). To calculate WTH tax 21 on the back

pay payment, first the WTH tax 21 is the same amount in every month. For thefollowing months, the WTH tax 21 each month shall be:

Salary IDR 3.500.000

Deduction


Pension contribution IDR 100.000 IDR 275.000






Taxable income per annual IDR 21.540.000WTH Tax 21 Liability 5% x IDR 21.540.000 IDR 1.077.000

WTH Tax 21 per month IDR 1.077.000 :12 months IDR 89.750

WTH Tax 21 from Jan-May’09 5 x IDR 89.750 IDR 448.750

WTH Tax 21 that has been withheld IDR 211.250

WTH Tax 21 on the back pay IDR 237.500

When any production reward, bonuses and other similar incomes:

Tommy (unmarried) works at PT Indonesian Company and earns IDR 2.000.000 a

month. In the year concerned, he receives a bonus IDR 5.000.000. Every month, he

pays contribution of IDR 60.000 to the pension fund approved by MOF.

The WTH tax 21 on salary and bonus should be as follows:

Annual salary 12 x IDR 2.000.000 IDR 24.000.000

Bonus IDR 5.000.000

Annual gross income IDR 29.000.000

Deduction

Employment expense 5% x IDR 29.000.000 IDR 1.450.000

Annual pension contribution 12 x IDR 60.000 IDR 720.000 IDR 2.170.000






The WTH tax 21 on salary should be as follows:

Annual salary 12 x IDR 2.000.000 IDR 24.000.000

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Deduction

Employment expense 5% x IDR 24.000.000 IDR 1.200.000

Annual pension contribution 12 x IDR 60.000 IDR 720.000 IDR 1.920.000


Non taxable income – annualTaxpayer IDR 15.840.000



The WTH tax 21 on bonus

IDR 549.500 – IDR 312.000 = IDR 237.500

When any salary and pension paid periodically:

Jerry, married with 2 children, as a permanent employment at PT JI and earns a

monthly salary of IDR 5.000.000 and also pays monthly fund contribution IDR

250.000 to Jakarta Pension Fund (JPF) which its establishment is approved by MOF.

Based on his company regulation starting 1 Jul’09, he will retire. The WTH 21 for

salary that wittheld by PT JI shall be as follows:

Salary IDR 5.000.000

Deduction




Net income for 6 months IDR 27.000.000



Add for married IDR 1.320.000

Add for 2 children IDR 2.640.000 IDR 19.800.000



WTH Tax 21 per month IDR 360.000 :6 months IDR 60.000

In Jul’09 he begins to receive his monthly pension IDR 3.000.000 from JPF. The

WTH 21 on this monthly pension that withheld by JPF shall be as follows:

Pension IDR 3.000.000

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Deduction

Pension contribution IDR 3.000.000 x 5% IDR 150.000


Net income for 6 month 6 x IDR 2.850.000 IDR 17.100.000

Net income from 6 month salaries IDR 27.000.000

Monthly net income 2009 IDR 44.100.000 Non taxable income – annual





WTH Tax 21 5% x IDR 24.300.000 IDR 1.215.000

WTH Tax 21 by PT JI IDR 360.000

WTH Tax 21 on pension withheld by JPF IDR 855.000

WTH Tax 21 on pension monthly IDR 855.000 : 6 IDR 142.500

Based on this case, the calculation o f WTH 21 on this monthly pension that withheld

by JPF on Jan’10 (the 2nd year of his pension) shall be as follows:

Pension IDR 3.000.000

Pension contribution IDR 3.000.000 x 5% IDR 150.000


Annual net income 12 x IDR 2.850.000 IDR 34.200.000






WTH Tax 21 5% x IDR 14.400.000 IDR 720.000

WTH Tax 21 on pension monthly IDR 720.000 : 12 IDR 60.000

When salary paid in foreign currency:

Edward is an employee earning salary in foreign currency in Jan’09 in USD 2,000 a

month. The exchange rate prevailing for Jan’09 on the basis of a decree of MOF is

IDR 11.250 per USD 1. Edward is married with 1 child. The WTH 21 shall be as

follows:

Salary USD 2,000 x IDR 11.250 IDR 22.500.000

Deduction


Max allowable contribution IDR 500.000

Monthly net income IDR 22.000.000Annual net income IDR 22.000.000 x 12 IDR 264.000.000

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WTH Tax 21: 5% x IDR 50.000.000

15% x IDR195.520.000 IDR 31.828.000

WTH Tax 21 per month IDR 31.828.000 :12 months IDR 2.652.333

When WTH 21 borne by the employer:

Bernard, married with 3 children, is an employee at PT JI. He receives a salary IDR

4.000.000 a month and WTH 21 is borne by the employer. Every month he pays a

pension contribution IDR 150.000. The WTH 21 shall be as follows:

Salary a month IDR 4.000.000

Deduction




Annual net income IDR 3.650.000 x 12 IDR 43.800.000






WTH Tax 21: 5% x IDR 22.680.000 IDR 1.134.000

WTH Tax 21 per month IDR 1.340.000 :12 months IDR 94.500

When any tax allowance:

Ferry, married with 3 children, works for PT ABC and earns IDR 2.500.000 a month

and He is granted a tax allowance IDR 25.000. The pension contribution paid by him

is IDR 25.000 a month. The WTH 21 shall be as follows:

Salary a month IDR 2.500.000

Deduction




Annual net income IDR 2.525.000 x 12 IDR 28.485.000 Non taxable income – annual

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WTH Tax 21: 5% x IDR 7.365.000 IDR 368.250WTH Tax 21 per month IDR 368.250 :12 months IDR 30.688

When having honorarium of a speaker:

George MBA is a speaker for one day seminar organized by a foundation. The

honorarium paid to him is IDR 2.500.000. The WTH 21 shall be as follows:

5% x IDR 2.500.000 = IDR 125.000

When getting prize in connection with a competition:

Chandra is a tennis professional which lives in Indonesia. She wins the Indonesian

open tennis tournament and receives prizes IDR 200.000.000. The WTH 21 shall beas follows:

5% x IDR 25.000.000 = IDR 2.500.000

15% x IDR 150.000.000 = IDR 22.500.000

IDR 25.000.000

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Chapter 5: Income Tax Article 23/26

Income Tax Article 23

Definition – A tax imposed on income derived from capital, delivering

services, or prizes and awards, other than that has been withheld by WTH Tax

21

The withholder of WTH Tax 23

Government agencies

Resident Firm Tax Payers

Activities Committee

Permanent Establishment

Other representatives of foreign companies

Resident Individual Tax Payers, who are appointed by the DGT

Tax Object and Tax Rate on WTH 23

Dividend, interest, royalties, prizes and awards that have not been withheld bythe WTH Tax 21 – 15% based on the gross income

Rental, technical, management, construction and consultant services that have

not been withheld by the WTH Tax 21 - 2% based on the gross income

Example of Calculation WTH Tax 23

PT Blue Steel Indonesia has transaction and withhold WTH Tax:

Pay interest loan to PT Bank Global Indonesia IDR 125 million. No WTH

Pay royalty to PT Blue Steel Holding IDR 100 million WTH Tax 23 IDR 100

million x 15% = IDR 15 million

Pay consultant fee to Indonesian Prime Consultant IDR 60 million. WTH Tax

23 IDR 60 million x 2% = IDR 1.200.000.

Pay machine rental to PT Global Machine Leasing IDR 75 million. WTH Tax

23 IDR 75 million x 2% = IDR 1.500.000.


Definition – A tax imposed on the income received by the non resident

taxpayer and or other than Permanent Establishment in Indonesia

The withholder of WTH Tax 26

Government agencies

Resident Tax Payers Activities Committee



Tax Object of WTH 26

Dividend

Interest including premium, discount and other remuneration in connection

with the repayment of debt guarantees

Royalties, rent and other income in connection with the use of property Remuneration with respect to the services, employment, and activities

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Prizes and awards

Pensions and other periodic payments

Swap premium and other hedging transaction

Profit due to the redemption of debt

WTH Tax 26 rate is 20% or reduced rates according to the Tax Treaty

The WTH tax base is on the following:

Gross Income (GI)

Net income (NI). NI = (certain % x GI)

Taxable income after income tax

The Nature of Imposition

Basically the nature of WTH Tax 26 is final except for the following:

Imposition on HQ (Head Quarter) income from activities in Indonesia

which is similar with the activities performed by PE in Indonesia

Imposition on income like dividend, interest etc received by HQ

provided any effective connection between PE with assets or activitieswhich generate income

Imposition on income received by individual tax payers or foreign firm

which change its status into a PE or a residence tax payer

Non Taxable Transaction

PE’s income can be exempted by WTH Tax 26 when all taxable income after

deducted by the income tax reinvest in Indonesia which should fulfill with the

following condition:

Conducted in form of capital on the company which its establishment

and domiciled in Indonesia as a founder or founder participant and Conducted during the year or at least on the subsequent year from the

year which its income generated and

Not conducting a transfer on those reinvestment at least two years after

commencement of the commercial production

Example of Calculation WTH Tax 26

Example on final Computation

PT Global Book Publication pays a royalty amounting to IDR 100 million

to MR Juan Carlos and he is Portugal tax residence. WTH Tax 26 IDR

100 million x 20% = IDR 20 million

PT China Electric Indonesia has concluded insurance contract on theirbuilding with a Chinese insurance company and subsequently pays

premium IDR 200 million. WTH Tax 26 IDR 200 million x 50% = IDR

100 million x 20% = IDR 20 million.

Ferrari Representative Office, a PE in Indonesia, transfer their profit to

HQ amounting to IDR 2 billion. WTH Tax 26 IDR 2 billion x 20% = IDR

400 million

Example on non final Computation

MR Ricardo, an expatriate, serves as an IT consultant at PT Indonesian

Technology (PT IT) for 5 months ahead starting Jan 01, 09. In April 01,09, the contract has been extended for 8 months, accordingly his status

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change into Indonesian taxpayers and WTH 26 that has been withheld

can be credited on his annual tax return.

Sweden Telecom (ST) has entered into a license agreement with PT IT to

use the trademark and subsequently PT IT has to pay royalty to ST. With

regards to this, ST also provides a management services to PT IT through

PE in Indonesia for marketing purposes. In this relation, the use of trademark by PT IT which has an effective connection with PE in

Indonesia and accordingly the royalty received by ST will be treated as

the income for PE.

Expatriate salary guide

Expatriate salary guide can be applied when:

When any indication that the bookkeeping is not correct so it could not be

calculated its tax liability

Found any evidence that not all of expatriate salary be booked for

payment the withholding tax article 21 and 26

Tax audits not found any data that could be used for define the expatriate

salary amount in order to calculate the withholding tax article 21 and 26

The application should consider the following:

Expatriate nationality

Nature of business

Position or title

No. JENIS USAHA JABATAN AMERIKA INGGRIS JERMAN BELANDA A

1 Dagang Manager 13,958 10,884 10,180 9,988 10

Lainnya 11,012 6,018 6,018 5,506 5,5

2 Industri Tekstil GM 10,372 8,900 10,372 8,900 8,9

Manager 8,003 6,403 8,003 7,811 7,8

Teknisi 7,107 5,314 7,107 5,314 5,3

3 Industri Lainnya GM 12,165 10,692 12,165 18,375 10

Manager 9,284 8,900 9,284 16,390 8,9

Teknisi 7,363 5,762 7,619 5,762 5,

4 Pertambangan

Umum/Non Oil

Drilling

Company

GM 22,153 17,095 16,771 16,583 25

Superintendent 15,494 13,894 12,997 13,894 13

Tool Pusher 12,165 11,076 11,076 11,076 11

Crew 9,988 6,403 8,964 6,403 6,4

5 Pertanian GM 10,372 8,900 8,900 10,372 8,9

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Manager 8,067 7,811 8,067 7,811 7,8

Teknisi 7,107 5,314 7,299 6,403 5,3

6 Perikanan GM 11,589 9,988 11,461 9,988 9,9

Manager 8,964 8,579 8,964 8,515 8,5

Teknisi 7,619 5,762 7,619 5,890 5,

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Chapter 6:

Income Tax Article 4 letter (2)

Tax on Interest etc

Definition - income like interest deposit and saving derived from Indonesian

based bank should be imposed a final tax

Tax Object

Interest deposit and saving including interest receipt from the bank which its

establishment in Indonesia

Discount Certificate on Central Bank of Indonesia

The rate - 20% on gross income or treaty rate when interest received by a non

resident taxpayer

The nature of tax – final and non final when interest received by individual

taxpayers which their annual salary do not exceeding the non taxable income.

The withholder tax – Indonesian bank including those located in offshore and

the Central Bank of Indonesia

Tax Object

Interest deposit and saving including interest receipt from the bank which its

establishment in Indonesia

Discount Certificate on Central Bank of Indonesia

Non Tax Object

Interest or discount received by Indonesian bank

Interest etc which its amount does not exceeding IDR 7,5 million

Interest etc received by pension fund approved by MOF

Tax on Land/building rental

Definition – tax on income derived from land/building rental

The rate - 10% on gross income

The nature of tax – final

The withholder of Tax on land/building rental:

Government agencies

Resident Tax Payers

Activities Committee



Resident Individual Tax Payers, who are appointed by DGT

In case that the withholder is other than what has been mentioned on the

withholder listing, the lessee should pay tax on land/building rental by their

self

The bookkeeping on rental income and its related expense should be booked

separately with other incomes and its expenses

For the taxpayers who only doing a rental business will not be obliged to do

prepaid tax article 25 installment

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Example PT Indonesian Textile Company rent a building and pays IDR 500

million for one year. The income tax article 4 is: 10% x IDR 500 million =

IDR 50 million.

Tax on Transfer Right on Land/building

Definition – tax on income derived from any form of the transfer right onland/building including selling, trade in, inheritance, financial lease, sale and

lease back, contribution in kind, build over transfer (BOT), insolvency,

merger, acquisition etc.

Nature of Tax

Rate

Tax Rate Taxpayers

Final 5% Taxpayers like real estate whose their core business are in

transfer right on land/building

Non Final Income TaxLaw Article

17

Taxpayers whose core business are not in transfer right onland/building

Tax on Construction Services

Definition – tax on income derived from construction services


The tax is withheld by the beneficiary on the payment time or self paid by the

service provider when beneficiary is not the tax withholder

Tax

Rate

Taxpayers

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2% Construction implementation company which qualify to a small size business

3% Construction implementation company which has a construction business

qualification

4% Construction implementation company which has no a construction business

qualification

4% Construction planning and supervisory company which has a construction

business qualification

6% Construction planning and supervisory company which has no a construction

business qualification

Tax on Lottery

Definition – tax on income derived from lottery


The tax rate – 25% on gross income

Example – PT Japan Paint promoted their product by conducting a lottery IDR

100 million. PT JP will withhold tax on lottery: 25% x IDR 100 million = IDR 25 million

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Tax Income Article 22

Introduction to Tax Income Article 22

• Definition – Tax withhold by certain taxpayer on domestic purchasing,

importation, certain domestic selling

• Withholder tax – government institution, government treasury, state owned

company (BUMN) or local owned company (BUMD) and Custom and ExciseDepartment

Income Tax article 22 on Domestic Purchasing

• Income tax article 22 impose on domestic purchasing conducted by the

following:

– Directorate General of Budgetary, government treasury, state owned

company (BUMN) or local owned company (BUMD) which arrange a

payment with fund coming from state budgetary or local budgetary –

will be taxed by 1,5%

– Certain state owned company like Central Bank of Indonesia,

Government Logistic Institution (Bulog), PT TelekomunikasiIndonesia (Telkom), PT Perusahaan Listrik Negara (PLN), PT Garuda

Indonesia, PT Indosat, PT Krakatau Steel, Pertamina, state owned

company banking which its fund coming from state budgetary or non

state budgetary - will be taxed by 1,5%

– Industry and exporter on sector of forestry, plantation, agricultural,

fishery on the material purchasing for industrial need or exporter from

collection trader – will be taxed by 0,5%

• The nature of tax is non final so it can be credited with our tax liability

• Non taxable transaction as follows;

– Payment which its amount under IDR 1 million and not as a partial

payment

– Payment for purchasing gasoline, power, postage goods

– Payment related with government project based on foreign donation

– Payment for purchasing rice by Government Logistic Institution

Example

• Example PT Mecoindo a metering system company sell 10.000 unit

electricity meter to PT PLN amounting to IDR 100 million. PLN will withhold

income tax article 22 is IDR 100 million x 1,5% = IDR 1,5 million and PT

Mecoindo will receive IDR 98,5 million and with the tax slip IDR 1,5 million.

• Note: Treasury of PLN will remit article 22 to Bank on same day of thecommercial settlement payment by using tax slip (SSP). The tax slip is signed

by the treasurer on behalf of Mecoindo so the name and Tax ID of Mecoindo

should be mentioned on the tax slip. The page 1 of tax slip is for Mecoindo

and the page 5 is for PLN. PLN will file monthly tax reporting on the 14th day

of the following month.

Income Tax article 22 on Importation

• Taxpayer doing an importation imposed by income tax article 22 with the

following rate:

– 2,5% on import value which has the import identification number

(APIT)

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– 7,5% on import value which has no the import identification number

(APIT)

• Import value is a value as a duty currency base consist of the CIF (Cost

Insurance Freight) plus import duty and other taxes according to custom

regulation.

• When importation using foreign currency should be converted by MOF rate.• The nature of tax is non final tax so it can be a tax credit that be claimed

against the accumulated tax liability on the year end.

• Non taxable importation

– Goods belongs to the diplomatic officer in duty based on reciprocal

principle

– Goods belongs to the acceptable international institution officers which

do not hold Indonesian passport

– Gifts for the purpose of religion ceremonial, charity, social and culture

– Goods for the purpose of museum, zoo or other similar place for public

– Goods for the purpose of science research and development

– Goods for the purpose of Central and Local Government – Etc

Example

• PT Jakarta Motor (JM) has an importer certificate (API) imported a brand

new car cost USD 59,000, insurance USD 250 and freight USD 750. MOF

Rate is IDR 10.000 per 1 USD and the computation of income tax as follows:

Cost = USD 59.000

Insurance = USD 250

Freight = USD 750

CIF = USD 60.000

CIF = IDR 600.000.000

Duty 50% = IDR 300.000.000

Import value = IDR 900.000.000

Import tax 2,5% = IDR 22.500.000

Note: when PT JM has no an imported certificate so the import tax will be IDR

67.500.000 (7,5% x IDR 900 million). Besides import tax, PT JM has to pay import

VAT IDR 90 million (10% x IDR 900 million).

Description Tax Base Nature

Cement industry 0.25% on VAT base Non Final

Steel Industry 0.3% on VAT base Non Final

Car industry 0.45% on VAT base Non Final

Paper industry 0.1% on VAT base Non Final

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Pertamina (state gas industry) 0.25% on sales Final

Private companies in gas trading industry 0.3% on sales Final

Cigarette industry 0.15% on price Final

Income Tax article 22 on Certain Domestic Selling

• The tax due is on sales except for Pertamina and other company in gas trading

industry is on issuing the delivery order

• Example PT Jakarta Gasoline (JG) a Gas Station Operator is planning to

purchase gas for 1 million liter from Pertamina and by assuming that 1 liter is

IDR 3.500, the calculation on tax article 22 is as follows:

Gas IDR 3.500 x 1 million liter = IDR 3.5 billion

Tax article 22 IDR 3.5 billion x 0,3% = IDR 10,5 million

Note: PT JG should pay the IDR 10,5 million using a tax payment slip (SSP) and submit the SSP to Pertamina and Pertamina will issue a delivery order

• Example PT Blue Steel Indonesia (BSI) purchase IDR 1 billion of steel from

PT Krakatau Steel (KS). The tax article 22 is IDR 3 million (IDR 1 billion x

0.3%). PT KS will issue invoice with the following details:

Steel IDR 1.000.000.000

VAT 10% IDR 100.000.000

Tax article 22 IDR 3.000.000

Total IDR 1.103.000.000

Note: PT BSI will credited the tax 22 against their annual tax liabilities and PT KS

should issue a tax slip as an evidence for PT BSI

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Chapter 7:


• Definition – Tax on offshore income received by the resident taxpayer that

paid or due on that offshore countries

• This tax is kind of a prepaid tax that can be credited against the annual tax

liability• The offshore income should be consolidated with domestic income on the

similar year

• The income consolidation should be done with the following:

– Consolidating on business income by cash basis during the year that

income being received

– Consolidating on business income by accrual basis during the year that

be earned

– Consolidating on dividend by accrual basis during the year that be

earned according to MOF decree

• The offshore profit can be recognized but as for the offshore loss can not be

recognized• In case any revision on the offshore income, the taxpayers should revise tax

returns by supporting with the related documents

• When the revision creates any underpayment so the revised tax returns lead

no penalty

• When the revision creates any overpayment can be refunded

• Indonesia apply an ordinary credit method with per country limitation

• The tax credit can be claimed by filing to the DGT along with the financial

statement on the offshore business, offshore tax returns and offshore payment

evidence

Example

• Example: PT Citra Trading (CT) received and earned some offshore incomes

with the following data:

• Business profit year 2006 from Malaysia amounting to IDR 800 million

• Dividend paid in 2006 amounting to IDR 200 million from Thailand

• Business profit year 2007 from Singapore amounting to IDR 500 million

The number 1 and 2 should be consolidated to the domestic income year 2006 and

number 3 be consolidated to the domestic income year 2007

Maximum tax credit limitation is taken from the lowest amount from the following:

• Tax amount paid on the offshore• Offshore income divided by the consolidated income and then times by the tax

rate article 17 Income Tax Law

• Total tax liabilities in case that the taxable income lower than offshore income

Example: PT Citra Trading (CT) earned some incomes year 2007 with the following

data:

1) Offshore income IDR 5 billion subject to the tax rate 40%

2) Domestic income IDR 3 billion

So the consolidated net income PT CT on year 2007 is IDR 8 billion (IDR 5 billion +

IDR 3 billion)The maximum tax credit limitation is taken from the lowest amount of the following:

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1) Tax amount paid on the offshore is IDR 2 billion (IDR 5 billion x

40%)

2) (IDR 5 billion : IDR 8 billion) x IDR 2,240 million = IDR 1,4 billion

3) 28% x IDR 8 billion = IDR 2,240 million

So the allowable tax credit is IDR 1,4 billion

PIT 1 to 8

Documents

Transcript of PIT 1 to 8