New Effective Tax Rates for the Employee Income Tax Imposition
- February 9, 2024
- Posted by: Administrator
- Category: Tax News
The MoF has issued regulation No. 168 of 2023 (“PMK-168”) as a supplement to Government Regulation Number 58 of 2023 (“PP-58”) concerning Article 21 withholding tax (“WHT”) rates on incomes related to the work, services, or activities of Individual Taxpayers, which has been in effect since 1 January 2024.
This regulation revokes and replaces the framework of the previous regulations, i.e. MoF regulation No. 250 of 2008, MoF regulation No. 252 of 2008, and MoF regulation No. 102 of 2016. PMK-168 comprises nine chapters and serves as a new framework guiding the imposition of Article 21 WHT.
Through this new regulation, the MoF introduces the new effective WHT rates (“TER”) which shall be applicable to employees, pensioners, and commissioners/supervisory boards. Accordingly, Taxpayers now should apply the TER in imposing the WHT during the periods January to November, except when the employee resigns. Meanwhile, the employee income tax calculation for the period of December, or the resignation period, remains the same.
As prescribed by Appendix of PP-58, there are 125 TER rates, which are divided into three major categories, i.e. TER A, TER B and TER C. These rates are applicable based on marital status of the employee and the level of gross income amount earned during the relevant period. In determining the taxable object, PMK-168 also now allows religious donations such as zakat paid through the employer to be considered as a deductible component in calculating the amount of taxable income. Thus, such component would be a new deduction element apart from the occupational allowance and pension cost paid by the employee, whenever applicable.
Similar to the previous regulations, please be aware that PMK-168 also defines the applicability of WHT calculation method for each type of employment, which are summarized as follows:
| Income Recipient | WHT Calculation Method |
| Permanent Employee | TER is applicable on the monthly gross income for the periods January to November. Meanwhile, for the period of December, or when the employee resigns, the normal WHT regime shall be applicable and the tax credit paid during the TER periods will be offset against the tax payable arising therefrom. |
| Pensioners | |
| Commissioner or Supervisory Board member who earns Irregular Income | TER is applicable on the gross income received during the month. |
| Non-permanent employees |
TER is applicable for those who receive (i) income on non-monthly basis with a daily wage, or average daily wage, of IDR 2.5 million per day or below, and/or (ii) income on monthly basis.
Meanwhile, the normal WHT regime will be applicable for those who receive income on non-monthly basis with a daily wage, or average daily wage, greater than IDR 2.5 million per day. |
| Non-Employees |
Similar with the previous regulations, the normal WHT regime is applicable on the gross income received during the month.
|
| Participants in activities | |
| Employee participants in pension programs | |
| Former Employee |
PMK-168 also stipulates that if there is a tax overpayment in a certain tax period, the overpayment can be taken into account in the following month’s tax due. PMK-168 also stipulates that if the tax overpayment occurs during a revision of a tax return, the overpayment can be taken into account in a tax return in the subsequent tax periods without having to be a consecutive month.
There have been questions on how the implementation of TER will affect the year-end WHT payable since it applies a deemed effective rate during January to November periods, the administration procedure for amending the WHT return prior to the TER regime, and so forth. Therefore, we expect further administrative guidelines from the DGT on implementation of this new regime.