Taxation in Indonesia
Encyclopedia
Definitions
Indonesian taxation is based on Article 23A of UUD 1945 (1945 Indonesian ConstitutionConstitution of Indonesia
The Constitution of Indonesia is the basis for the government of the Indonesia.The constitution was written in June, July and August 1945, when Indonesia was emerging from Japanese control at the end of World War II...
), where tax is an enforceable contribution exposed on all Indonesian citizens, foreign nationals and residents who have resided for 120 cumulative days within a twelve month period.
Indonesia has a stratification of taxation including Income Tax, Local Tax (Pajak Daerah) and Central Government Tax.
The Indonesian Taxation Laws
The relevant eight fundamental taxation laws of Indonesia include:- General Provisions and Taxation Procedures Law "Undang-undang Ketentuan Umum dan Tatacara Perpajakan/UUKUTp" Law No. 6/1983, amended by Law no.16/2000;
- Income Tax Law ("Undang-undang Pajak Penghasilan/UU PPh": Law No.7/1983, amended by Law No. 17/2000;ameded by law No 36/2008
- Value Added Tax VATVatVat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
termed 'Goods and Services and Sales Tax on Luxury Goods' ("Undang-undang Pajak Pertambahan Nilai atas Barang dan Jasa dan Pajak Penjualan atas Barang Mewah"/UU PPN/PPn BM ): Law No. 8/1983, amended by Law No. 18/2000; - Land Tax and Building Tax ("Undang-undang Pajak Bumi dan Bangunan - UU PBB"): Law No. 12/1985 amended by Law No. 12/1994;
- Warrant for Tax Collection ("Undang-undang Penagihan Pajak dengan Surat Paksa/UU PPSP") Law No. 19/1997, amended by Law No. 19/2000;
- Fees for Acquisition of RightsRightsRights are legal, social, or ethical principles of freedom or entitlement; that is, rights are the fundamental normative rules about what is allowed of people or owed to people, according to some legal system, social convention, or ethical theory...
to Lands and Buildings ("Undang-undang Bea Perolehan Hak atas Tanah dan Bangunan/UU BPHTB") Law No. 21/1997 amended by Law No. 20/2000; - Tax Court Law ("Undang-undang Pengadilan Pajak/UU PP"): Law No. 14/2002;
- Stamp DutyStamp dutyStamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
("Undang-undang Bea Meterai/UU BM") in short, Law Number 13 of 1985.
Definitions
Indonesian Taxation law provides the following definitions to clarify whom exactly is obligated to pay tax:Individuals or statutory bodies which meet relevant criteria stipulated, including certain tax collectors or withholders.
Statutory bodies are defined by Indonesian Taxation Law as groups of persons and/or capital which constitutes a unit. These are more clearly defined as such entities undertaking or not undertaking businesses, covering limited liability companies, limited partnership companies, other companies, state or regional administration-owned companies in whatever names and forms, firms, joint companies, cooperatives, pension funds, partnerships, groups, foundations, mass organisations, social and political organisations or organisations of the same type, institutions, permanent establishments and other forms of statutory bodies.
Companies and entrepreneurs are defined in the context of Indonesian Taxation Law as those in their business activities or works/jobs produce goods, import goods, export goods, undertake trading businesses, utilize goods, provide or utilize services from regions outside the customs area.
Companies are subject to Value-Added Tax, pursuant to Law of 1984 and all amendments, excluding the few small-scale businesses whose criteria are stipulated by the Minister of Finance.
The Indonesian Tax Period is defined as one calendar month or other periods stipulated by a decision of the Minister of Finance at the maximum of 3 (three) calendar months (quarters
Quarters
Quarters is a popular drinking game which involves players bouncing a quarter off a table in an attempt to have the quarter land in a certain place, usually into a shotglass on that table. The game is popular at parties, especially in colleges and universities in the United States and Canada, as...
).
Tax Year shall be the period of 1 (one) calendar year unless taxpayers use accounting years different from the calendar year.
Indonesian Taxpayers must submit a Tax Return
Tax return
A tax return is a tax form that can be filed with a government body to declare liability for taxation in various countries:* Tax return * Tax return * Tax return * Tax return...
form which details and reports the calculation of tax payment owed by them. Tax Return
Tax return
A tax return is a tax form that can be filed with a government body to declare liability for taxation in various countries:* Tax return * Tax return * Tax return * Tax return...
s may cover a tax period or a tax year.
Tax Payments shall be letters used by taxpayers to pay or remit tax due to the state cash through Post Offices and/or state- or regional administration-owned banks or other payment point appointed by the Minister of Finance.
The penalties for Tax Evasion and Avoidance are very strict in Indonesia. For Underpaid-Tax, Additional Underpaid-Tax, Overpaid-Tax and Nil-Tax Assessments- which may be received by the debtor in the form of letters, warrants and administrative sanctions.
Tax Credits for over-taxation or overpayment is withheld until the subsequent year- as payouts are not issued within the same financial year.
Independent works/jobs shall be jobs executed by individuals having special expertise in a bid to earn income not bound by certain working relations.
Appeals against the Taxation Department may be arbitrated via the Court of Appeals
Court of Appeals
A court of appeals is an appellate court generally.Court of Appeals may refer to:*Military Court of Appeals *Corte d'Assise d'Appello *Philippine Court of Appeals*High Court of Appeals of Turkey*United States courts of appeals...
at taxpayer expense.
Taxation Rates
Indonesia has a series of progressive sliding rate taxes for all categories. Furthermore, as a developing nation, much economic activity is done at the 'cottage' level where sales and services taxation are tax exempt.Indonesia's taxations system recognises the economic reality of the majority poorer citizens and the poor are exempt from almost any taxation.
The underlying ethic of "gotong-royong"- "neighbourly [sic moral] help" is applied where the more fortunate wealthier are enforced to meet their moral obligation of a heavier burden of tax- regardless of arbitrary arguments to its fairness.
The tax-free poverty threshold
Poverty threshold
The poverty threshold, or poverty line, is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country...
for Indonesian income earners is also dependent on regions as there exists some disparity between purchasing power of the Rupiah between regions and intra-regionally between larger urban cities and smaller ones. The Capital, Jakarta
Jakarta
Jakarta is the capital and largest city of Indonesia. Officially known as the Special Capital Territory of Jakarta, it is located on the northwest coast of Java, has an area of , and a population of 9,580,000. Jakarta is the country's economic, cultural and political centre...
is considered the most expensive city in term of all goods, services and wages.
Income Tax
Income taxation is subject to Regional (Propinsi) government regulations defined by the economic realities of that particular area. As mentioned above, the poorer denizens are exempt from almost all taxation.| Band | Annual Income | Rate |
|---|---|---|
| Tax Free | Up to Rp15,840,000 | 0% |
| Band I | Up to Rp50,000,000 | 5% |
| Band II | Rp50,000,000 to Rp250,000,000 | 15% |
| Band III | Rp250,000,000 to Rp500,000,000 | 25% |
| Band IV | Above Rp500,000,000 | 30% |
Although rates are Regionally variable, for the sake of illustration income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
basically employs a progressive rate, commencing at 10% gross
Gross (economics)
In economics, gross means before deductions. The antonym is net, meaning after deductions.-Usage:In this sense, it may appear an adjective, following the noun it modifies, e.g., "earned two million dollars, gross"...
salary income per annum, sliding to 30% per annum. Regulations are being debated as of 2008 to include income from shares, dividends, trusts and such related.
For example, the most urbanised and industrialised region, DKI Jakarta (Special Administrative Region of Greater Municipality of Jakarta), income taxation commences with salaries greater than one million Rupiah (IDR
Indonesian rupiah
The rupiah is the official currency of Indonesia. Issued and controlled by the Bank of Indonesia, the ISO 4217 currency code for the Indonesian rupiah is IDR. Informally, Indonesians also use the word "perak" in referring to rupiah...
) per calendar month, at a rate of 10%, which slides progressively to 40%.
Goods and Services Taxation
A Goods and Services Tax (GSTGST
-Computing:* Generalised suffix tree, a tree-like data structure* GNOME System Tools, part of the GNOME desktop environment* GNU Smalltalk, an implementation of the Smalltalk language* GST Computer Systems, a group of companies based in Cambridge, England...
) is levied at the rate of approx 10% at point of sale, by major vendors. Sales and services tax are exempt from cottage economies and industries.
Land and Constructions Tax
Land Tax and Tax for the buildings constructed there upon must paid annually, or may be paid via arrangement in ten year blocks by Indonesian land title deed-holders, pursuant to relevant criteria for exclusions. In general terms, this tax is applicable mainly to those of the middle classes and upwards.Land holding businesses must also pay this tax.
Land and Constructions thereupon are calculated at a value calculated by the Regional government- which is less than real market worth. This calculated value has the caveat
Caveat
Caveat , the third-person singular present subjunctive of the Latin cavere, means "warning" ; it can be shorthand for Latin phrases such as:...
of being a legally non-negotiable purchase price if the Government wishes to procure said land.
In Jakarta
Jakarta
Jakarta is the capital and largest city of Indonesia. Officially known as the Special Capital Territory of Jakarta, it is located on the northwest coast of Java, has an area of , and a population of 9,580,000. Jakarta is the country's economic, cultural and political centre...
, land tax is 10% of Government calculated value.
Non Indonesians may not legally own land but may arrange long-term assured leases from the Indonesian Central Government. As such, Foreign Nationals may not subject to the Land Tax obligation of Indonesians.
Exemptions from Land Tax exist for poorer society. Land Tax calculations are considered a highly specialised skill- most especially as the punishments and sanctions for false reportage are very severe and indeed costly.
Vehicles
Passenger Vehicle Tax is required to be paid by all owners, the rationale being those fortunate enough to afford a motor vehicle can afford to subsidise their poorer brethren who rely on far less luxurious public transportation.Again, Regional Government legislates the specific definitions regarding this tax.
For the city of Jakarta, the city with the greatest vehicle ownership, most congested city, 1% of current vehicle real agreed market is due annually.
Furthermore- passenger vehicles with an engine capacity greater than 4 cylinders are taxed again and as are those mass greater than 1500 kilogrammes (commonly four-wheel drives and SUV's).
Transportation and logistics vehicles, truck
Truck
A truck or lorry is a motor vehicle designed to transport cargo. Trucks vary greatly in size, power, and configuration, with the smallest being mechanically similar to an automobile...
s/lorries, bus
Bus
A bus is a road vehicle designed to carry passengers. Buses can have a capacity as high as 300 passengers. The most common type of bus is the single-decker bus, with larger loads carried by double-decker buses and articulated buses, and smaller loads carried by midibuses and minibuses; coaches are...
es, van
Van
A van is a kind of vehicle used for transporting goods or groups of people.In British English usage, it can be either specially designed or based on a saloon or sedan car, the latter type often including derivatives with open backs...
s and utility pick-ups are taxed according to axle
Axle
An axle is a central shaft for a rotating wheel or gear. On wheeled vehicles, the axle may be fixed to the wheels, rotating with them, or fixed to its surroundings, with the wheels rotating around the axle. In the former case, bearings or bushings are provided at the mounting points where the axle...
number, vehicle mass and maximum safe gross loaded weight.
Maximum loaded weight inspections are frequent and random and joked colloquially as the Police's cash-cow.
Petroleum is taxed at a rate of approximately 25%- though remains cheaper than neighbouring developed nations such as Australia or Singapore.