Tax Guidelines for Insurance Contracts (Implementation of PSAK 117)

Ref: PER-5/PJ/2026

The Director General of Taxes issued Regulation Number PER-5/PJ/2026 on 20 April 2026, to address the significant shift in the Financial Accounting Standards (SAK) concerning Insurance Contracts, which became effective for Fiscal Year 2025. This regulation is designed to provide legal certainty, fairness, and administrative ease for Taxpayers in the insurance industry when calculating Annual Income Tax (PPh) during the transition period from previous standards to PSAK 117. Specifically, this policy governs how the recognition of income and expenses is conducted for the 2025 Fiscal Year.

Substantively, this policy acknowledges the “gap” between commercial accounting standards, which focus on financial report accountability, and tax regulations, which prioritize the certainty of state revenue. Through PER-5/PJ/2026, the tax authority attempts to harmonize these two interests so that changes in insurance contract measurement methods do not impose excessive administrative burdens or lead to interpretative disputes for insurance and reinsurance business entities.

Key Policy Highlights:

– Dual Calculation Basis for 2025: For the 2025 Fiscal Year, the recognition of income and expenses is determined based on the 2024 accounting principles OR the new Financial Accounting Standards (PSAK 117) regarding insurance contracts.

– Reliance on OJK Reports: If the Taxpayer is required to submit 2025 financial statements to the Financial Services Authority (OJK), the tax calculation must be based on the report submitted to OJK.

– Filing Requirements: Taxpayers must attach audited 2025 financial statements based on PSAK 117 AND the calculation report to their 2025 Annual Income Tax Return.

Flexibility in Income and Expense Recognition (2025 Transition Year). Articles 3 and 4 of this regulation establish a unique mechanism for calculating Taxable Income for the transition year. The amount of Taxable Income is determined based on gross income less the costs of obtaining, collecting, and maintaining (3M) said income. However, specifically for the 2025 Fiscal Year, the recognition of such income and expenses must be based on the principles of recognition, measurement, presentation, and disclosure of Insurance Contracts applicable in 2024, even if the company has commercially adopted the new standards.

This means that Taxpayers must still prepare the basis for tax calculation using the “lens” of the old accounting standards (before PSAK 117) combined with the prevailing Income Tax laws for the 2025 Fiscal Year. This approach is taken to maintain consistency in the tax calculation basis, preventing drastic fluctuations in fiscal profit/loss due to the highly technical changes in insurance liability measurement methods under PSAK 117.

Synchronization with Financial Services Authority (OJK) Reports. In an effort to strengthen data validity, Article 4 paragraph (2) emphasizes the link between tax reporting and reporting to the sectoral regulator. If an insurance Taxpayer is required to submit 2025 financial statements to the Financial Services Authority (OJK) using specific standards, then the calculation of Taxable Income must be based on the financial statements submitted to the OJK. This reflects the principle of data integrity, where the tax authority utilizes reports verified by the financial regulator as a credible database.

Documentation Required and Annual Tax Return Attachments. Provisions regarding administrative completeness are strictly regulated in Article 4 paragraph (3) to ensure reporting accountability. Insurance Taxpayers are required to attach three primary documents to their 2025 Annual Income Tax Return:

1. audited 2025 financial statements based on PSAK 117,

2. 2025 financial statements prepared based on the 2024 accounting principles (as the tax basis), and

3. other supporting documents in accordance with tax regulations.

Without these documents, the Annual Tax Return may be considered incomplete, which could trigger administrative sanctions or field audit risks. Through this obligation, the DGT ensures it has access to comprehensive data to verify whether the accounting transition to PSAK 117 has been correctly separated from the calculation of tax liabilities, which still utilizes the old rules as mandated by this regulation.

Effective Date: 20 April 2026 (Applicable for Fiscal Year 2025).