THE LAW OF THE REPUBLIC OF INDONESIA
1. Based on the Pancasila and 1945 Constitution, Article 23 paragraph (2) the tax system and legislation function as the base for collecting state taxes, including Income Tax, have to be stipulated by law.
2. The development implementation as the application of the Pancasila is aimed at enabling this country to finance the National Development with domestic sources by dividing the development load among groups with both high and low income respectively to bolster the National Development spread in order to strengthen National Resilience.
3. Income Tax as one state revenue, originating from the People's income needs to be regulated with the Law able to give legal certainty in accordance with life in a Pancasila Democratic State.
4. This Income Tax regulates the tax imposition material which basically concerns the Tax Subject (who is imposed with tax) Tax Object and Tax Tariff (how to calculate tax) with equal imposition and a just burden. Whereas the collecting procedure shall be regulated in a separate law creating uniformity so that it will enable the people to learn, to understand and to observe it.
5. In the previous legislative regulations on taxes, the income tax imposition is regulated in various laws, namely:
(a) The 1925 Corporate Tax Ordinance Regulating the imposition material and procedure of income taxes for bodies
(b) The 1944 Income Tax Ordinance, regulating the imposition material and procedure of income tax of individuals. This also regulates is the tax deduction upon the employees' income by their employer.
(c) Law of Tax on Interest, Dividend and Royalty, 1970 regulating the imposition material & procedure of tax upon interest, Dividends and Royalty, which should be deducted by the persons and bodies paying the interest, dividends and Royalty.
(d) Law No. 8 Year 1967 and Government Regulation No. 11 Year 1967 regulating income Tax imposition procedures, particularly in the form of business profit, as long as the collecting procedure by another party (MPO) and the payment by the taxpayer himself (Periodical MPS) were in the current year and the calculation in the end of the year (Final MPS).
6. The new tax legislative regulations regulate as follows:
(a) all provisions concerning the application of taxes upon income obtained by individuals and bodies are regulated in this law.
(b) provisions regarding the imposition procedure for both the income tax and other taxes the imposition of which is carried out by the Directorate General of Taxation are regulated in Law No. 6 Year 1983 Re General Provisions and Procedure on Taxes. The objective of this simplification as aforementioned is to enable the community to learn, understand and observe it. This law simplifies the tax structure such as the kinds of taxes, tariff and ways of fulfilling the tax obligation. The Tax tariffs are stipulated properly based on the principles of equability in collecting and justice in burdening the tax. The tariff structure is simplified and progressive, which means that the higher the income, the higher the percentage of the tax tariff. The tariff for individuals is the same as that of a body, with the highest tariff level lower than that of the former one; therefore the following advantages can be obtained:
(a) Simple for the Tax Subject to calculate and for the tax administration to test the tax calculation by the Taxpayer; there are no longer different tariffs for Taxpayers, so this supports the aforementioned simplicity and facility.
(b) Justice and equitable burden, the application of the same tariff to the same income level disregarding the origin thereof.
(c) Improving observance by the Taxpayer; because the highest marginal tariff is only 35% (thirty five percent), the willingness to pay the income tax increases; the increasing willingness to pay, and it will be easier for the tax administration to test, thus it will improve the observance of the Taxpayer.
(d) reducing the transfer of income from a body to an individual or vice versa, because it will not bring any benefit to the Taxpayer.
ARTICLE BY ARTICLE
This law regulates the imposition of tax on income, both received or obtained by an individual and body which is indebted for one fiscal year.
The meaning of Tax Subject shall be both an individual and an undivided inheritance or body.
An individual here shall be a Tax Subject both living in Indonesia and abroad. The one residing in Indonesia will become a Tax Subject due to their birth in Indonesia or if an individual has been in Indonesia for more than 183 (one hundred and eighty three) days within a period of 12 (twelve) months, therefore he will become a Tax Subject since he arrived in Indonesia. Said 183 (one hundred eighty three) days is not necessarily consecutive.
An individual residing or staying in Indonesia is no longer a Tax Subject at the time he dies or leaves Indonesia for good. For those residing outside Indonesia will become The Tax Subject in Indonesia if they receive or obtain income from Indonesia.
The are no longer Tax Subjects in Indonesia since they no longer receive or obtain income from Indonesia, that is the income as referred to in article 26.
The undivided inheritance substitutes for the Tax Subject that is the entitled one.
The undivided inheritance starts becoming a Tax Subject when said inheritance exists (at death) and it comes to an end when it is divided to those entitled to it.
The inheritance become a Tax Subject if it yields income.
The bodies such as limited liability companies, limited partnerships, state-owned ies and regional-owned undertaking bodies under any name and form whatsoever, associations, corporations or other associations, firms, partnerships, cooperatives, foundations or institutions become Tax Subjects when they are founded or when they begin to receive income as referred to in Article 26 for bodies founded or domiciled outside Indonesia.
Bodies founded or domiciled in Indonesia are no longer Tax Subjects after liquidation is settled, and bodies founded or domiciled outside Indonesia are no longer Indonesian Tax Subjects after the termination of the economic relation with Indonesia, that is when they no longer receive or obtain income from Indonesia.
It should be noted that certain units of state-owned bodies which carry out a socioeconomic operation regularly become a Tax Subject as a state-owned company.
A body outside Indonesia which has a permanent undertaking form in Indonesia becomes an Indonesian Tax Subject with the existence thereof.
Subparagraph a and b
A permanent business form in Indonesia from a foreign company or body is categorized as a domestic Tax Subject.
Basically a domestic Tax Subject shall be imposed with tax upon its total income from wheresoever it is obtained, both from in or outside Indonesia.
The income from a permanent business form as a domestic Tax Subject is
separately formulated in Article 5. Not only can any body possess a permanent business in Indonesia, but also any Company including a private one outside Indonesia. By the permanent business form we mean a certain form or something having permanent nature as a partial or total operation of business in Indonesia from a body or company founded domiciled or available outside Indonesia.
By carrying out business regularly we mean carrying out a business operation which shows the intention to run it continuously.
For example, in case of furnishing of services, which include consultancy services, if once rendered by a foreigner coming to Indonesia as a tourist because of the request from his friend in Indonesia, such a consultancy service is not categorized as a regular business operation and therefore it is not regarded as a permanent business form in Indonesia.
However, if the tourist comes back to Indonesia to provide consultancy services, on behalf of a foreign company, to a company in Indonesia because he is recommended by the aforementioned friend, this can be regarded as a permanent business form in Indonesia because there has been an indication of the intention to continuously provide consultancy services in Indonesia.
A foreign insurance company possesses a permanent business form in Indonesia if the company receives insurance premiums in Indonesia or bears the risk in Indonesia through its employees or other representatives but not an independent agent.
A foreign company is regarded as not having a permanent business form in Indonesia if in its operation in Indonesia the company uses a broker or an independent agent provided that the broker or agent acts on behalf of its own company. Therefore, if the agent acts fully or almost fully on behalf of the foreign company, the agent does not meet the requirement as an independent agent, in other words, the broker or agent still performs operations for the foreign company.
Foreign Tax Subjects shall be those residing or domiciling outside Indonesia, but receiving or obtaining income from Indonesia. The Tax Subject is one who obtains income and for this reason is obligated to pay taxes, herein called a Taxpayer. In the other words, a Taxpayer is a person or a body who has met, the subjective and objective obligations. The major difference between the domestic Taxpayer and foreign one is that the domestic Taxpayer after the expiration of the fiscal year has to submit an annual Tax Return. The Taxpayer shall report the income received or obtained, the calculation of taxable income and the owed tax therein. The Taxpayer also reports all payment of the owed taxes. If the annual Tax Return has been correctly completed and the owed tax has been properly paid, therefore it is not necessary to issue the Tax Assessment Letter for him. This Tax Assessment Letter is issued if only the Taxpayer does not submit the annual Tax Return or if the Annual Tax Return is not correct or incomplete, so that the payment deficiency should be collected by a Tax Assessment Letter plus the relative administrative sanction.Whereas the foreign Taxpayer is not obligated to submit an Annual Tax Return.
To stipulate whether or not a person or a body resides or is domiciled in Indonesia shall be in accordance with actual conditions or reality, not according to formal cases.
In certain cases, the Director General of Taxation is competent to stipulate where a person or body is staying, residing or domiciled. This is based on practical considerations in order to give legal certainty.
Subparagraphs a and b
According to international custom, a member of a diplomatic representation, counsellor and other officials are excepted from being Tax Subjects in the countries in which they represent. Likewise Armed Forces members from foreign countries and international organization representatives like the World Health Organization (WHO), International Monetary Fund (IMF) and others. The reciprocal condition is an international custom.
If they have another job, or business, this exception is invalid and they will be subject to taxes upon the income they receive or obtain from that job or business.
Based on the objective and nature of the State-owned Company, it can be excepted from being a Tax Subject on the basis of a Decree of the Minister of Finance.
This Law follows an idea of a wide income namely any additional economic benefit. The addition of economic capability received or obtained by person or body is the best measurement for a person or body to take part in bearing the expenses required by the government in financing its routine activities and the development. This is one of the characteristics of this Income Tax system to equalize the development burden. Any addition of economic benefit wheresoever it comes from means an additional capacity in helping the government finance its activities. The definition of income in this law is no longer bound to whether or not there is a certain income source like in the former law.
An income can be seen from the flow of the additional economic benefit to the Taxpayer, and this can be grouped into:
- Income from a job, that is a job in an employment relation and free employment, like income from general practitioners, notary, public accountant, actuary, lawyer etc.;
- income from business activities, that is activities by means of companies;
- income from capital, either from moveable capital goods such as interest, dividend, royalties, or from immovable capital goods such as house rent and others; also included in this capital income is that from self-operated property, such as that obtained from cultivating a piece of land, the profit of the sales of the properties or rights not used in carrying out business activities.
- other income, such as lottery prizes, debt exemption and other income which are not included in other groups.
Viewed from the point of usage, income can be used for consumption and savings which are further used to obtain property which is not consumed in one year. Although income can be grouped, the definition of income is limited to that obtained from certain sources.
Examples mentioned herein are simply to clarify the definition of the extensive income and not to limit to what has been stated herein.
All remuneration or payment upon work within an employment relation which can be in the form of wage, salary and other, included therein non-life and life insurance premium paid by the employer. Remuneration in nature is not included in the income of the recipient, for instance, housing (except in remote places where there is no house to rent), motor vehicles and others. For the employer, said expenses cannot be deducted as the cost as referred to in Article 9 Paragraph (1) Subparagraph d.
Honorarium paid to artists, sportsmen, speakers like in international seminars for example.Lottery prizes also include rewards given without a lottery.
Undertaking gross profit, means gross income obtained from an undertaking/business. Undertaking gross profit plus other gross incomes make up total gross income.
The Annual Tax Return shall also contain the gross profit of the undertaking and the deductions allowed by this law. So it does not mean that the Annual Tax Return only contains the taxable income. The addition of other income and cost deductions upon the undertakings net profit reflect the tax world as the horizontal compensation. Both undertaking net profit and other income after being reduced by their respective costs can be negative. Such horizontal compensation is permitted in the calculation of taxable income.
If a Taxpayer sells property at more than the balance book price or the acquisition price/value at the time of sales, the price difference is income. If the sold property does not belong to a company and has come into the possession of the Taxpayer before this law is effective, the obtained income is the difference between the selling price and the selling value at the time this law is effective.
Similarly, if a company sells its property to a shareholder, for instance, a car with a book price of Rp. 1,000,000.00 (one million rupiahs) and the market price is Rp. 5,000,000.00 (five million rupiahs), therefore the difference of Rp. 4,000,000.00 (four million rupiahs) is income for the company and for the shareholder the amount Rp. 4,000,000.00 (four million rupiahs) is income.
The return of tax calculated as the cost when calculating the taxable income, for example, value added tax on goods and services and sales tax on luxury goods, which after being restated turn out to be over-paid, the surplus becomes income.
Interest includes other rewards in connection with debt returning guarantees, either promised or not.
This stipulation regulates income in the form of dividend, that is part of the profit received by a shareholder or an insurance policy. Whatever name is given to or in whatever form the part of the profit is received, this is not subject to consideration.
Included in the definition of dividend shall be:
1. Profit distribution both directly and indirectly, under any name or form whatsoever;
2. Repayment due to liquidation exceeding the paid up capital;
3. The gift of a bonus share conducted without any deposit not originating from the company property revaluation;
4. The recording of capital addition conducted without any deposit not originating from the company property revaluation;
5. Anything received or obtained due to repurchase of the shares by the relative company, exceeding the investment;
6. The total or partial repayment of the paid up capital if in the previous years profits have been obtained, except if the repayment is due to the statutory decrease of the authorized capital;
7. Payment upon profit indications, including those received as the redemption of said indications;
8. Profit from bonds participating in profit distribution;
9. Company expenses for personal needs of the shareholders, which are burdened as a company cost.
It should be emphasized that from items 1 through 9 it can be concluded that the dividend or company profit distribution has an extensive meaning, that is, every distribution of the company's profits under any name or form whatsoever.
In practice, the distribution/payment of dividends is frequently disguised, for example, by transfer of the company's property to a shareholder or participant by changing a price below the market price.The difference between the market price and the paid price by the shareholder is a disguised payment of dividend [See elucidation paragraph (1)(d)].
Exampl : A car belongs to PT A. The book balance is Rp. 1,000,000.00 the market price is Rp. 5,000,000.00. The car is transferred to a shareholder B at the book balance price, of Rp. 1,000,000.00. Thus, there is a disguised payment of dividend amounting to Rp. 4,000,000.00. Based on this stipulation, PT A shall deduct income tax of 15% x Rp. 4,000,000.00 = Rp. 600,000.00.
The definition of dividend also covers parts of profits received by management and members of cooperatives. At the cooperatives level, the balance of the cooperatives profit merely originating from the operation performed by and for the members' benefit is not included in the definition of the taxable income. Therefore, for the management and members of the cooperatives, the amount of the distribution or payment of the cooperatives operation profit is a taxable income.
If the amount received by staff of the management and members of the cooperatives does not exceed the amount of the non-taxable income, the distribution and repayment of the cooperatives operation profit is not taxable.
The payment of royalties herein under any name whatsoever in connection with the use of rights such as patent, license, trade-mark, pattern or model, plan, company secret, method of work, copy-right of art or scientific work, including cinemographic film work.
Basically royalty payments are comprised of three groups, based upon the use of:
i. right upon intangible property copyright, patent, trademark, company secret or formula;
ii. rights upon tangible property rights on industrial equipment, commerce and science;
iii. services: providing information needed in business and investment ingeneral, experience in the field of industry, trading and science in particular; the information herein means that which is not yet disclosed.
This provision regulates the rental received or obtained upon the leased property, both movable, like a car, or immovable, like a house.
Example : Periodically paid life-long allowance.
The debt exemption by the creditor constitutes an income to the debtor.
In line with the provision in Paragraph (1)(f) of this Chapter, interest constitutes a tax object. The community's savings are also a source for development. With Government Regulation, interest for time deposits and other savings are exempted from taxes by due observance of the monetary development and development implementation.
Granted property or aid received which has no relation to business or work between the relative parties is excluded from income. This is to balance Article 9 (f) which regulates that a granted property or aid shall not be deducted from the income by the giver.
Inheritance as an additional economic capability received by those entitled is not a tax object even though the amount is large. Inheritance as a tax subject is taxable if it can bring in income, such as the rent received from an inherited house.
Payment by an insurance company to a policy holder due to an accident, loss or death of the person, and also the receipt of a scholarship from the insurance company is not income.
Article 9 Paragraph (1) (c) states that the premium of the insurance of life, health, double function (dwiguna) insurance, and scholarship insurance are not to be deducted from the income unless it is guaranteed by the employer.
If an employer as a Tax Subject in compliance with this law gives a convenience in nature to an employee or another person having relation to the work, it is not considered as income to the recipient. By a reward in nature we mean additional economic capability received or obtained not in the form of money, for instance, the use of a car from the company free of charge, occupying a company owned or rented house, the gift of rice free of charge and others.
The employer is not permitted to deduct said amount as a cost from the income. The convenience of occupying state owned houses by civil servants, state official functionaries and functionaries of non-departmental institutions is not part of the income of the relative persons. This also applies to state owned companies. If the convenience provider is not a Tax Subject according to this law, it is a part of an income of the recipient.
An employee working for a diplomatic representative receives a convenience to occupy a house rented by the diplomatic representative which is not a Tax Subject in this country, it shall be included in the income of the recipient. This also applies to other kinds of convenience. This is intended to motivate the employer to give allowances in the form money to the employee so that the tax can be easily paid.
Transferring property by somebody or a member of a firm, association, limited partnership, or partnership transferring the association property to found a limited liability company with payment in the form of shares, the profit in the form of the discrepancy between the book balance price an the sales price of the property does not constitute income if after the transferring party or collectively transferring parties owns at least 90% (ninety percent) of the total invested share value of the limited liability company receiving the transfer. The 90% requirements should be fulfilled at the time of the transfer.
The property transferred to a limited liability company, association or other body as the substitute of share or capital participation is not taxable on the transfer, but in the future if said property is transferred again or is sold; the valuation of said property should be the same as the book balance price on the transfer.
A dividend received or obtained by a domestic limited liability company from another limited liability company is not considered income if the receiving company is not only making interest on the unused money, but basically permanent and the two companies are actually of one unit of business line. Dividend on the interest of the money, as long as the money is not used, is subject to tax.
PT A, is a textile company, PT B is a weaving yarn company. There is an economic relation in their business line. PT A possesses 25% (twenty five percent) of the equity of PT B, so the dividend received by PT A from PT B is not included in the definition of income.
If the body receiving or obtaining a dividend possessed 25% (twenty five percent) or more of the authorized shares, whereas the two companies have no economic relation in their business line, the dividend received of obtained is excluded from the exception as a Tax Object as referred to in this provision.
PT X is a textile company. PT Y is a beverage company. PT X possesses 25% (twenty five percent) of the authorized shares of by PT Y. Between PT X and PT Y there is no economic relation in their business line. Therefore, the dividend receivedor obtained by PT X from PT Y is not excluded as a Tax Object. In other words, the dividend received or obtained by PT X from PT Y is a Tax Object.
Contributions received by pension funds the foundation of which has been approved by the Minister of Finance, paid periodically or in cash by both the employer and the taxpayer are not included in taxable income.
The definition of the operation exclusively intended for public interest is that meeting the following requirements:
a. the operation shall be social in characteristic such as in field of religion, education, health and culture;
b. the operation shall be exclusively intended to help promote public welfare;
c. the operation is not for making profit.
Profit of the foundation excluded from the definition of income is not other than the excess of the financial operation proceeds from the income realization exceeding the realization of cost incurred within the fiscal year. This profit excludes the definition of Tax Object according to this law as long as the profit is merely an excess from the operational proceeds as explained above, which has been calculated to perform social activities of the foundation or association.
If the profit is large enough and so that the excess is then distributed to the members of the foundation executives, the operation is no longer merely for public interest and the excess becomes the part of taxable income.
The foundation's income from capital received outside the operation which is merely for public interest, which is used to finance the foundation's social activities is not a tax object. For instance, a foundation or edification in financing its activities receives a contribution. The excess thereof is used to finance its activities is invested outside its social activities. The income received or obtained from this investment as long as it is used to finance its social activities is not a tax object.
The distribution of profit received or obtained by members of a limited partnership the capital of which comprises shares, firms, union, and association is not a tax object. But, this law gives competence to the Minister of Finance to apply income tax upon the profit distribution above if this provision is misused so that it inflicts losses on the State Finance.
The income constituting tax objects of a permanent undertaking form shall be as follows:
That imposed with income tax is the income of the operation of a permanent undertaking form or assets controlled or possessed by the permanent undertaking form. Any income both from operation and assets, either obtained in Indonesia or outside Indonesia, is taxable according to this law, for instance income from the possession of shares outside Indonesia by the permanent undertaking form in Indonesia is that which should be taxed in Indonesia.
If the parent company or other body abroad which has a special relation carries out the same activities as that by its permanent undertaking form in Indonesia, the Indonesia income tax should be applied to the income from the operation.
This is intended to apply tax to the permanent undertaking form upon its incomes from its particular activities which are basically the operation of the permanent undertaking form, to prevent the reason that particular activities of a permanent undertaking form, whereas the income tax of the activities should be the responsibility of the permanent undertaking form.
This law is not intended to impose tax on the permanent undertaking form, if it receives an income from a parent company which has no connection with the permanent undertaking form whereas upon this income the tax has been deducted in accordance with Article 26. The costs for obtaining, maintaining and collecting the parent company's income is not taxable to the permanent undertaking form in Indonesia.
Included in routine business costs (costs for obtaining, collecting and maintaining income) are those spent for basic material, auxiliary materials and packing, rent and royalty, travel for performing work, indirect taxes for example Value Added Tax upon goods and services and sales tax for luxury goods. Costs spent to obtain goods having usage period of more than one year can only reduce the taxable income through depreciation or amortization. If pension funds founded by a company or other pension funds approved by the Minister of Finance, the contribution paid to the pension funds can be deducted from the income.
The taxable income is calculated by totalling all income in one fiscal year reduced by the total of costs incurred within the fiscal year in accordance with this Article.
The cost of obtaining; collecting and maintaining income is the cost or expenditure which has a direct connection with the income received by the taxpayer. Cost to obtain, to collect and maintain the income of an undertaking (which can be called overhead) includes the payment of salaries to employees of the relative company, except that in nature or convenience (convenience of occupying a house free of charge). The payment of premiums by the employer to the employee can be deducted as a company cost whereas for the employee it constitutes income. The salary to an employee who is also a shareholder if the amount is extravagant, exceeding other's who are not shareholders performing the same work, tasks or occupation as the shareholder, the excess cannot be used to reduce income. This cost also includes the interest paid in connection with company debt, except if the amount exceeds that stipulated by the Minister of Finance as referred to in Article 18 Paragraph (1).
The interest paid in connection with that of a personal debt cannot reduce the income because such an interest is the use of an income. The payment of interest for embezzlement which may occur in a special relation cannot reduce the taxable income either.
Sub paragraph b
The terms of depreciation for tangible assets and amortization of intangible properties or rights have usually been used in the field of accountancy.
Sub paragraph c
Sub paragraph d
The usage of income cannot be used as a deducting factor in calculating the taxable income. The purchase of goods for personal purposes which is not to be used to obtain income cannot be depreciated. If the goods for own use are then sold with a loss, the loss cannot reduce the taxable income. It should be confirmed that for goods, the sales loss which can reduce the taxable income is that which is used to perform an undertaking (which is also used to obtain income), therefore the loss of selling the company's land included in the company's assets can reduce the taxable income. This should be clarified because of in Article 11, Paragraph (1), land is property that cannot be depreciated.
The balance of the cooperatives operation in connection with activities from and for its members is not taxable at the cooperatives level.
To an individual as a domestic Taxpayer for calculating his taxable income, there still is a reduction in the form of non-taxable income as referred to in Article 7. (See further elucidation on Article 7).
If after the reduction of gross income by the allowable burdens in accordance with paragraph (1) yields a loss, the loss can be compensated within 5 (five) years from the year following the loss. In line with a Decree of the Minister of Finance, for certain undertakings, which according to objective consideration does not bring any profit within 5 years, it can be compensated within 8 (eight) years at the most.
To an individual as a domestic taxpayer shall be granted a reduction in the form of a non taxable income. For the Taxpayer himself the non taxable income is Rp. 960,000.00 (nine hundred and sixty thousand rupiahs). For a married one, by Rp. 480,000.00 (four hundred and eighty thousand rupiahs) is added. In case a wife receives an income from a job which has been taxed on the basis of Article 21, her nontaxable income is Rp. 960,000.00 (nine hundred and sixty thousand rupiahs) while in calculating the tax upon the husband's income, a reduction of Rp. 960,000.00 (nine hundred and sixty thousand rupiahs) plus Rp. 480,000.00 (four hundred eighty thousand rupiahs) is granted. In such a case, if the employer is calculating the taxable income of the wife, it is reduced by Rp. 960,000.00 (nine hundred and sixty thousand rupiahs) but the reduction of Rp. 480,000.00 (four hundred and eighty thousand rupiahs) is not added. In case the wife has an income, the amount of non taxable income is increased by Rp. 960,000.00 (nine hundred and sixty thousand rupiahs).
The addition of non-taxable income of Rp. 960,000.00 (nine hundred and sixty thousand rupiahs) mentioned above is not granted in cases where the wife has an income from a job which has received reduction of a non taxable income amounting to Rp. 960,000.00 (nine hundred and sixty thousand rupiahs).
An additional reduction of Rp. 460,000.00 (four hundred and eighty thousand rupiahs) is granted to a wife if she receives the only income, whereas the husband does not receive any income. In such a case, the additional reduction for the family is given to the wife.
By such a reduction the employer obtains the facility in collecting from the income of his employees, because the employer is not burdened by too many obligations to further verify whether the wife works or not, the wife's income has been taxed or not, et cetera. For every person of the blood relation family and by marriage in vertical line, for example, parents, parents in law, children, stepchildren grandchildren and others who are the full dependents of the taxpayer, he is granted a reduction amounting to Rp. 480,000.00 (four hundred eighty thousand rupiahs) with a limit of 3 (three) persons.
To an individual as a foreign taxpayer that is one staying in Indonesia for loss than 183 (one hundred eighty three) days within 12 consecutive months of a fiscal year will not be granted a reduction in the form of non-taxable income as referred to in Paragraph (1). For an individual foreign taxpayer, the taxable income shall be the gross income as referred to in Article 16, Paragraph (3).
The amount of the reduction in the form of non taxable income, is determined according to the situation at the beginning of fiscal year and on becoming a domestic tax subject.
For instance, a taxpayer on Jan. 1 gets married and has 1 (one) dependant. If in the middle of the year the second baby is born, for the fiscal year when the second child is born the marriage is considered to have only one child.
The Minister of Finance is competent to adjust the amount of non taxable income by considering changes in the economy.
Based on this paragraph, the income as well as the loss for a woman, who was married in the beginning of the fiscal year is regarded as the income or loss for her husband.
This provision emphasizes economic capability, that is, the husband and wife are one unit, and with provisions, the tax does not lose its progressive elements in the tariff imposition.
The combination of incomes is not done in the context that the wife receives her income by working as an employee or the husband receives income from working as an employee and upon said incomes, tax have been collected according to Article 21, except if the wife's income is obtained from work which has connections with the husband's or other family member's business.
By other family members we mean one which is the full dependant of the husband as referred to in Article 7, Paragraph (1) (d) this means that to them (who receive income from working as employees) in the tax imposition, an income reduction is granted in the form of non-taxable income as referred to in Article 7 for each person amounting to Rp. 960,000.00 (nine hundred sixty thousand rupiahs).
To give clearer elucidation, some examples are given below.
1. Determinant time
a. A women who gets married after Jan. 1 (in this case the fiscal year is the same as the calendar year) fiscally she is considered unmarried, so that the tax is imposed on her.
Income or loss for the woman is considered income or loss for the husband as from the commencement of the next fiscal year.
b. For the husband and wife having married in Indonesia, the income and losses for the wife are considered as the income and losses for the husband.
2. Income of a wife as an employee:
a. Both the husband and wife get income from working as employees and for each of them the tax has been collected in compliance with Article 21. In this case none of the wife's income is regarded as the husband's. Their tax as employees which has been collected in accordance with Article 21 is final. They do not need to submit their Annual Tax Return as referred to in Article 30.
b. A wife receives an income as an employee, which has been taxed in accordance with Article 21. Besides that, she also receives another income outside working as an employee, for instance the income from her business of running a beauty salon. Her husband receives an income only from working as an employee the tax of which has been collected according to Article 21. In this case, the income of the wife's regarded as that of the husband is only that gained from running the beauty salon. The wife's income from working as an employee which has been taxed according to Article 21 is final. This is also applicable in the case where the husband and/or wife are not clearly taxed by the employer, because the amount of their income is below the non taxable incomes. Therefore, the owed income tax which should be accounted for through the submission of the Annual Tax Return is only based on the husband's income plus the wife's from running the beauty salon. In calculating the taxable income, they may reduce the amount by Rp. 480,000.00 (four hundred eighty thousand rupiahs) in compliance with Article 7 Paragraph (1) (b), and Rp. 960,000.00 (nine hundred sixty thousand rupiahs). The tax which has been collected upon the husband's income from his job is calculated as a credit.
c. The wife receives an income only from working as an employee the tax of which has been collected according to Article 21. The husband besides receiving an income from working as an employee the tax of which has been collected according to Article 21 also receives another income, for instance from the taxi business. In this case, the income of the wife which has been taxed according to Article 21 is not considered the husband's and is final. Therefore, the owed income tax is based on the husband's income from working as an employee and from his taxi business. In the calculation of the taxable income under the name of the husband, a reduction as a non-taxable income as referred to in Article 7 is granted to the husband amounting to Rp. 960,000.00 (nine hundred sixty thousand rupiahs) plus Rp. 460,000.00 (four hundred sixty thousand rupiahs) because he is married. The tax collected upon the husband's income from working as an employee is calculated as a credit toward the owed tax.
d. The wife's income besides as an employee which has been taxed according to Article 21 is also from her beauty salon. Likewise the husband besides that from working as an employee which has been taxed according to Article 21 he also receives another income from his taxi business. In this case the income of the wife regarded as the income of the husband is that coming from running the beauty salon only; The income of the wife received by working as an employee which has been taxed according to Article 21 is final. Therefore, the owed income tax which should be reported in the Annual Tax Return is the amount of the owed tax upon the income of the husband from working as an employee from the taxi business and from his wife's beauty salon business. In calculating the tax, outside that which has been deducted and paid by the wife's employer, the reduction in the form of non-taxable income as referred to in Article 7 of is Rp. 960,000.00 (nine hundred sixty thousand rupiahs) plus Rp. 480,000.00 (four hundred eighty thousand rupiahs) because he is married. (The addition of non-taxable income of Rp. 960,000.00 (nine hundred sixty thousand rupiahs) is no longer granted because it has been calculated when deducting the wife's income tax.
The income of a child, including an adopted one, not yet of age, is combined with that of the parent's.
In line with the objective of the imposition of tax to the Taxpayer not yet adult, the definition of adult in tax provisions should pay attention to definition of the same thing in another law, including the that in labor, that an adult is a man or woman of 18 (eighteen) years who has got married is regarded an adult. Men or women of 18 (eighteen) years up and those who are under 18 years old but they have been married, in the community are stated as people who are capable to perform legal acts and regarded as able to and obligated to earn their living themselves Based on this consideration, the definition of adult is a man or woman who is of 18 (eighteen) years up or one who has got married though he/she if below 18 (eighteen) years old.
Dividend shall not be deducted from the income of the distributing company, because it is the part of the company's income included as taxable according to this law, therefore if a dividend is allowed to be reduced, the taxable income of the company will decrease. Upon said distributed dividend an income tax is imposed according to Article 23 or Article 26.
The establishment or accumulation of a reserve fund is generally intended to extend the company and to guarantee the company operation. Such establishment or accumulation cannot be burdened as a reduction in calculating the taxable income.
In this case there should be differentiation between reserve and separation. Separation is intended for the definite or compulsory burden, even though the exact amount is not yet known, for instance the separation for the Regional Development Contribution (Ipeda), additional tax and others.
For particular undertakings, it requires the reserve to cover the possible burden or loss, for instance banking and insurance. In this case, this regulation refers to a Government Regulation to regulate its further implementation.
The insurance premium paid by the Taxpayer himself cannot be deducted from the income. When the policy holder receives the payment, it is not income as referred to in Article 4 paragraph (3) (c).
All convenience granted to the employee cannot be deducted from the income of the employer because it is not income for the recipient (employees) according to Article 4 paragraph (3) (d). Concerning isolated regions, the Minister of Finance is competent to issue a decree on the definition of isolated region, where there are no homes to available rent, so that the company has to provide homes for employees. Therefore, only this expenditure can be deducted.
As an example, an expert who happens to be a shareholder of a body provides services to said body. For his services he receives a payment of Rp. 500,000.00 (five hundred thousand rupiahs), whereas for the same job performed by another expert the payment is only Rp. 100,000.00 (one hundred thousand rupiahs). As there is a special connection, the amount Rp. 400,000.00 (four hundred thousand rupiahs) shall not be deducted because it exceeds reasonableness. For the expert said payment is also taxable as dividend.
Granted property, inheritance and aid payment shall not be deducted because to the recipient it does not constitute income as referred to in Article 4 Paragraph (30) (a) and (b).
Income tax shall not be deducted because it is not a cost for obtaining or collecting an income, and the indebted tax is calculated upon the taxable income as a result of the calculation after undergoing the allowable deduction.
Cost spent for personal needs of the Taxpayer or his dependant are not company costs, but the use of income, therefore such an expenditure cannot be deducted from the taxable income.
Donations in any form whatsoever cannot be deducted from income.
This cost is for example the cost for an advertisement regarding the introduction of a new product which will not occur again in the next few years, therefore this cost cannot be directly deducted from the income, but through amortization.
In general purchase, the evaluation basis is the acquisition price. In the case of exchanging or being bought from another Taxpayer which has a special connection, the acquisition value is used, that is the price which should be paid according to the normal market price. The following is an exchange.
PT A PT B
Property X Property Y
Book balance Price Rp. 10,000,000.00 Rp. 12,000,000.00
Market price Rp. 20,000,000.00 Rp. 20,000,000.00
Between PT A and PT B there is a property exchange. Even though there is no payment realization between the two parties, because the market price of the property exchanged is Rp. 20,000,000.00 (twenty million rupiahs), therefore the sum of Rp. 20,000,000.00 (twenty million rupiahs) constitutes an acquisition value which should have been incurred. This acquisition value also becomes the net income for the application of Article 11 Paragraph (7) Letter b. While the difference between the market price and the book balance price of the property exchanged is a taxable profit.
To PT A there is a profit amounting to Rp. 20,000,000.00 minus Rp. 10,000,000.00 = Rp. 10,000,000.00 while to PT B the profit is Rp. 20,000,000.00 minus Rp. 12,000,000.00 = Rp. 8,000,000.00. The exceptions from the provisions of said application of the acquisition value or price shall be in:
The exchange of shares of a body with an individual's property as referred to in Article 4 Paragraph (3) (e), therefore the basis for share valuation or other participation is the same as the transferred property value (deformation from an individual to a body does not remit in tax debt, and if the shares are transferred with profits, the profits are taxable).
For the body or corporation receiving the property in exchange to the shares, the property valuation basis is the property value or book balance price of the property exchanged.
Someone receiving inheritance, the acquisition value is that for the heir/heiress in case of property not depreciable or the book balance price of the said property at the time of transfer in case of depreciable property. The provisions in (a) and (b) are also applicable to this case, that is if the inherited property is sold, the profit thereof is taxable.
The same thing applies to the case of the granted property or an aid which is non taxable.
In case there is an addition, repair and other expenditure which are normally spent to increase the capacity of the said property, the acquisition price should be adjusted by said expenditure. An addition can mean an expenditure to obtain additional assets and can also be as referred to in this paragraph that is an expense to add the capacity of particular assets.
By adjustment upon acquisition price or property use mean:
- the decrease of value due to depreciation;
- the addition of value due to the additional expense to add, repair or increase the capacity of said property.
For instance, a property has an initial amount of Rp. 100,000,000.00 (one hundred million rupiahs). In the current year, an addition or repair has been conducted at the cost of Rp. 25,000,000.00 (twenty five million rupiahs), therefore, the initial value thereof next year is Rp. 100,000,000.00 plus Rp. 25,000,000.00 minus depreciation.
The expense burdening in connection with property estimates is basically of 2 (two) groups, namely:
a. Expenditures which can be regarded as overhead for instance the costs for maintenance and repair which are usually conducted periodically, to maintain the technical benefits of the property;
b. Expenditure not regarded as overhead, for instance the cost for rehabilitation, major repair, which are conducted To increase the capacity of said property.
Expenditure belonging to group b, the beneficial period of which is for a definite longer period than the current fiscal year, therefore it is reasonable if the expenditure is burdened to the property estimate (decapitalization) and the reduced by the depreciation in accordance with the beneficial period of the relative property.
In general there are 3 (three) groups of goods stocks, namely:
a. finished goods;
b. goods in the production process;
c. Raw and auxiliary materials.
The provision in this paragraph regulates the valuation of goods stock to the acquisition price. While the valuation of stock used to calculate the basic price can be done only with the pro rata method or by giving precedence to the stock obtained first (by using "first in first out" method abbreviated FIFO).
1. initial stock 100 ea @ Rp. 9.00
2. purchase/obtained 100 ea @ Rp. 12.00
3: purchase/obtained 100 ea @ Rp. 11.25
4. sales/used 100 ea
5. sales/used 100 ea
6. last stock 100 ea
Evaluation of stock used for basic price
calculation with pro-rata method
No Obtained Used Balance/stock
1. .................................... ........................... 100 s @ Rp. 9.00
= Rp. 900.00
2. 100 s @ Rp. 12.00 ........................... 200 s @ Rp. 10.50
= Rp. 1,200.00 = Rp. 2,100.00
3. 100 s @ Rp. 11.25 ........................... 300 s @ Rp. 10.75
= Rp. 1,125.00 = Rp. 3,225.00
4. .................................... 100 s @ Rp. 10.75 200 s @ Rp. 10.75
= Rp. 1,075.00 = Rp. 2,150.00
5. .................................... 100 s @ Rp. 10.75 100 s @ Rp. 10.75
= Rp. 1,075.00 = Rp. 1,075.00
Evaluation of stock used for basic price calculation by giving precedence to the stock
No Obtained Used Balance/stock
1. ..................................... .............................. 100 s @ Rp. 9.00
= Rp. 900.00
2. 100 s @ Rp. 12.00 .............................. 100 s @ Rp. 9.00
= Rp. 1,200.00 = Rp. 900.00
100 s @ Rp. 12.00
= Rp. 1,200.00
3. 100 s @ Rp. 11.25 ............................... 100 s @ Rp. 9.00
= Rp. 1,125.00 = Rp. 900.00
100 s @ Rp. 12.00
= Rp. 1,200.00
100 s @ Rp. 11.25
= Rp. 1,125.00
4. ................................ 100 s @ Rp. 9.00 100 s @ Rp. 12.00
= Rp. 900.00 = Rp. 1,200.00
5. ................................ 100 s @ Rp. 12.00 100 s @ Rp. 11.25
= Rp. 1,200.00 = Rp. 1,125.00
Once a Taxpayer opts for a method of stock valuation used for basic price calculation, the same method shall be used in following years.
The burdening of cost to obtain, to collect and to maintain an income which has a useful life of more than one year, according to this law is conducted through depreciation (for tangible property) and amortization (for intangible property), and for both of them the same principles are applied.
In the depreciation system according to this provision, all assets are grouped into four groups of property, depending on its useful life. To each of the groups, depreciation percentage is determined and said percentage is applied upon an amount as the basis of depreciation. If within one fiscal year there is no assets addition and withdrawal from usage, the amount of the book balance price of the previous year, having the initial price for the current year can be directly multiplied by the percentage of depreciation tariff.
What is depreciable is all tangible property owned and used by the company or which is owned to obtain income. Land cannot be depreciated except if the land is used by the company or owned to obtain income on condition that the value of the land decreases because it is used to obtain income, for instance land which is used by roof tile manufacturers. So what can be depreciated is not only company property but also the property used for production, for instance the cost to build a house which can be used to obtain rents.
Every kind of property is grouped according to its useful life. For each group of property the tariff or depreciation percentage is determined. Property grouping is regulated in Paragraph (3), for instance a machine which belongs to Group 2, the tariff or depreciation percentage is 25% (twenty five percent), which is applied to the initial amount of the property group in the beginning of the fiscal year plus the purchase or addition minus the net income of the sold property.
This paragraph divides properties into 4 (four) groups. Each group of property consists of many kinds of properties which have almost the same useful life. To assist the Taxpayer in following the development of the property, either in the form of decrease or increase, a list of properties should be made for each group, including among other things the year of acquisition/purchase, acquisition price, property group, and depreciation tariff so that at any time the depreciation amount to each of the properties can be known. This is important for the Taxpayer, especially when there is a withdrawal due to an extraordinary cause, see elucidation on Paragraph (7) of this Article.
A separate estimate shall be made for each building and other immovable properties.
The depreciation basic calculation is the amount in the beginning of the fiscal year, plus the additions, either in the form of the new properties or addition upon the property conducted to increase the capacity of said property, repairs or changes and minus the reduction as stipulated in Paragraph (7) of this Article.
For non building groups, that is Groups 1,2 and 3 the initial amount of the groups is the book balance price of the previous fiscal year which remains upon for the addition of new property and reduction by net income of the sold property, then the depreciation tariff is applied. If within the current fiscal year there is an additional expenditure to obtain the company property depreciable according to this law, the initial amount is added to the expenditure to obtain the new property. if one of the kinds of property is no longer used and is sold (due to general causes), the net income from the sale is deducted from the initial amount of the relative.
For the Category of Buildings, the depreciation shall be calculated from the acquisition price.
For several types of assets, there is the possibility that they can not be used anymore, for example struck by a disaster. It can also happen due to the fact that the company has eased a major portion of its production, for reasons beyond the Company's Control.
The withdrawal of said assets is called withdrawal from usage/operations due to extraordinary reasons. The value to the amount of the book value balance of said assets shall be deducted from the initial amount of the relative assets category, and said amount shall be charged to the profit and loss account in the fiscal year concerned. If said asset is sold, or obtains an insurance indemnification, then said, sales price or insurance indemnification shall constitute income/revenue in the fiscal year concerned.
EXAMPLE OF DEPRECIATION OF CATEGORY
1984 Initial amount per Jan 1, 1984 ................... = Rp. 0.00
Addition : Car "A" = Rp. 1,500.-
Car "B" = Rp. 2,500.-
Car "C" = Rp. 1,200.-
= Rp. 5,200.00
Deduction .............................................. = Rp. 0.00
Initial amount (Jan 1, 1984) ............................... = Rp 0.00
Additions ("A", "B", "C") .................................... = Rp. 5,200.00
Deduction ........................................................ = (Rp. 0.00)
Depreciation basis ............................................. = Rp. 5,200.00
Depreciation (50%) ............................................ = (Rp. 2,600.00)
Initial amount per Jan 1, 1985 ............................. = Rp. 2,600.00
1985 Addition : Car "D'" .............................. = Rp. 3,000.00
Deduction : Car "C", burnt
(due to extraordinary reasons)
acquisition price (1984) Rp. 1,200.00
depreciated (1984) Rp. 600.00
book value balance (1985) Rp. 600.00
insurance indemnification Rp. 800.00
Calculation of depreciation
Initial amount (Jan 1, 1985) .................................... = Rp. 2,600.00
Addition ("D") ................................................... = Rp. 3,000.00
(Loss) Deduction ("C" book value balance) ........................ = (Rp. 600.00)
Depreciation basis .................... ............................ = Rp. 5,000.00
Depreciation (50%) ............................................... = (Rp. 2,500.00)
Initial amount per Jan 1, 1986 ................................ = Rp. 2,500.00
(Profit) Income/revenue (insurance indemnification on Car "C") = Rp. 800.00
A withdrawal other than mentioned above, is called withdrawal from usage due to normal reasons, for example said asset is sold. The net proceeds from the sale of said asset, namely the difference between the sale price with appropriate expenses and those actually incurred related to said sale, shall be deducted from the initial amount of the asset category concerned.
Example (continuance of the calculation at Subparagraph a)
Begin amount per Jan 1, 1986 .................................... = Rp. 2,500.00
1986 : Addition = Rp. 0.00
Deduction : Car "B" is sold
(due to normal season)
acquisition price (1984) Rp. 2,500.00
depreciated ('84 & '85) Rp. 1,875.00
book value balance(1986) Rp. 625.00
sale price Rp. 1,000.00
Calculation of Depreciation
Initial amount (Jan 1, 1986) ...................................... = Rp. 2,500.00
Addition/ ................................................................. = Rp. 0.00
Deduction ("B" sale price) ......................................... = (Rp. 1,000.00)
Depreciation basis ................................................... = Rp. 1,500.00
Depreciation (50%) .................................................. = (Rp. 750.00)
Initial amount .......................................................... = Rp. 750.00
Note: the book value balance amounting to Rp. 625.00 is ignored.
The depreciation basis shall be negative, if negative, the amount causing this negative value, shall be added as income/revenue. If the amount serving as the depreciation basis is negative, then this means that the proceeds of the assets are not used anymore in the operation activity or exceeds the initial amount serving as a depreciation basis. In other words, the sales proceeds exceed the book value balance of the asset category concerned; accordingly, said difference constitutes a profit of the sale of an asset, which, based on this law, shall be imposed with tax at the moment said profit is received or obtained.
The book value balance of Category I asset per Jan 1, 1984 = Rp. 1,000,000.00
Withdrawal from usage in 1984
Sale price Rp. 1,500,000.00
Sale cost Rp. 200,000.00
Net proceeds of assets sale = Rp. 1,300,000.00
Negative difference = Rp. 300,000.00
accordingly the depreciation basis for 1984 is: NIL.
The difference amounting to Rp. 300,000.- constitutes income for fiscal year 1984.
The depreciation tariff shall be determined by the benefit period of depreciable assets.
In Article 9 paragraph (2), it is stated that the cost for obtaining taxable income having a benefit period of more than one year may not be deducted in one lump sum from the income. The acquisition price of an intangible asset and other expenses having a benefit period more than one year, shall be amortised by the tariff applicable for Category 1 or Category 2 or Category 3, or amortised by applying the production unit method as mentioned in paragraph (12) and paragraph 13 of this Article.
Establishment expenses and capital expansion can be amortised as Category 1, or charged as expenses according to Article 6 Paragraph (1) Subparagraph a. The taxpayer can choose to amortise or charge as an expense. If the taxpayer chooses charging in one lump sum, this must be consistent with its bookkeeping, meaning, that it will be charged in the fiscal year chosen by him.
Expenses for acquiring a mining right, besides oil and natural gas and forest exploitation rights, can be deducted as amortisation by applying the production unit method. This means, that the amortisation percentage of said expenses shall each be equal to the percentage of mining or filling each year of the estimate of the overall production volume as example in the case of a mining concession estimated to have a deposit of 100,000 tons, and in one year produces 10,000 ton.
Accordingly, said mining concession in the relative fiscal Year is amortised by 10% (ten percent). Nevertheless, it is not allowed to conduct an amortisation of more than 20% (twenty percent) in one fiscal year.
Particularly in respect to the oil and natural gas mining sector, the expenses for acquiring a right/concession and/or other expenses having a benefit period of more than one year, shall be amortised by the production unit method without certain percentage limitations.
The Minister of Finance has the authority to issue a decision on the classification of depreciable assets. In said decision, the classification of the asset type into the asset category, shall be based on the benefit period of said asset type as well as the relative activity type.
Basically the fiscal year is the calendar year.
The taxpayer can apply a fiscal year different from the calendar year namely covering the period for 12 (twelve) months. If the bookkeeping of the Taxpayer covers a period of less or more than 12 (twelve) months, then the tax computation shall be based on the relative fiscal year, by observing the calendar months of said year.
If the Taxpayer applies a fiscal year, then this matter shall be declared when submitting the Annual Return to the Director General of Taxation.
Mention the fiscal year. For a fiscal year which is the same as to the calendar year, mention of said fiscal year as said calendar year. If the fiscal year is not the same as the calendar year, their the fiscal year concerned shall use the year, in which are included the first six months or more of the six months of said fiscal year.
a. The fiscal year is the same as the calendar year.
The bookkeeping is January 1 thorough December 31, 1985.
The fiscal year is year 1985.
b. The fiscal is not the same as the fiscal year:
1) Bookkeeping is July 1, 1985 through June 30, 1986
the fiscal year is 1985, as the year 1985 has the first six months of
the fiscal year.
2) Bookkeeping April 1, 1985 through March 31, 1986
The fiscal year shall be 1985, as year 1985 has more than 6 months
of said fiscal year.
3) Bookkeeping October 1, 1985 through September 30, 1986. The fiscal
year shall be year 1986, as the year 1986, has more than six months
of said fiscal year.
The application of the fiscal year, both based on a calendar year or fiscal year, shall be consistent. This is particularly to prevent the possibility of shifting profits or losses, if the Taxpayer is provided the liberty to change his fiscal year at any time.
Accordingly, if the Taxpayer is desirous of introducing a change in the fiscal year, he shall be obligated to apply for prior approval from the Director General of Taxation.
Each Taxpayer obtaining income from an undertaking and/or free occupation, shall be under obligation to keep books in Indonesian. Said bookkeeping shall be available and conducted in Indonesian, because said bookkeeping is the basis for calculating the amount of taxable income as inserted in the Annual Tax Return, so that it can be verified in Indonesian, in order to know that said bookkeeping has been conducted correctly, in accordance with the provisions of this law. From the bookkeeping, one should be able to determine the net profit of the undertaking or the net revenue/income.
From the net profit or from said net revenue, shall subsequently be calculated the taxable income of said Taxpayer as the bookkeeping conducted by the Taxpayer serves as the starting point for calculating the taxable income, the bookkeeping shall be based on a method or system applied in Indonesia, for example based on the Indonesian Accountancy Principles Composed by the Indonesian Accountants Association.
The bookkeeping can be conducted by the Cash System as well as the Accrual System. The Cash System is a calculation without which is based on income received, and the expenses paid in cash. According to this method, income shall be considered only as an income, when actually received in cash during a certain period, and costs shall be considered as costs, if actually paid in cash during a certain period.
The Accrual System is the method of calculating income and expenses, namely said income is determined at the time of acquisition, and the costs determined at the time it is indebted. So it does not depend or when said revenue is received, and when said cost is paid in cash.
The amount of the delivery = Rp 10,500,-
Consisting of : - delivery already received the payment thereof = Rp 10,000.--
- delivery the payment of which is not yet received = Rp 500,-
Accrual System : Revenue (sale) Rp 10,500.--
Cash System : Revenue (sale) Rp 10,000.-
The Rp 500 is determined as revenue of the following
period, if received in cash
b. Income in the form of interest
Loan for 6 month (September 1, 1984 through February 28, 1985).
A loan amounting to 12% per annum and to be paid at the expiration of the
September 1, 1984 through December 31, 1984 = 4 months = Rp 400.-
Jan 1, 1985 through February 2, 1985 = 2 months = Rp 200.-
Accrual System : Interest revenue of 1984 = Rp 400.-
1985 = Rp 200.-
Cash System : Interest revenue of 1984 = Rp 0.-
(not yet received in cash)
1985 = Rp 600.-
(the moment received in cash).
2. Expense costs (in this case a lease example is given).
A motor car rental during 4 months (October 1, 1984 through January 31, 1985).
The rental amounting to Rp 4,000 is paid at the beginning of the lease period.
Rental calculation :
October 1, 1984 through December 31, 1985 = 3 months = Rp 3,000.-
Jan 1, 1985 through Jan 31, 1985 = 1 month = Rp 1,000.-
Accrual System : rental year 1984 = Rp 3,000.-
Rental year 1985 = Rp 1,000.--
Cash System : rental year 1984 = Rp 4,000.-
(When paid in cash)
1985 = Rp 0.00
The Cash System is normally applied by small individual companies or service
companies, for example transportation, entertainment, restaurants, of which the
time lapse between the delivery of the service and the receipt of its payment
does not last long. In a pure cash system, the income/revenue of the delivery
of the goods/ services are determined at the moment the payment is received
from the customer, and the expenses are determined upon payment for the
goods, services and other operational expenses.
By this method, the application of the cash system can cause an observed
calculation on revenues, namely the amount of the revenues from year to year
can be adjusted by regulating the cash receipts and the cash disbursements.
Accordingly, for the purpose of Income Tax computation, in the case of cash
system application, attention shall be paid, among other things, to the following
1) The calculation of the sales amount in a certain period shall cover the
entire sales, both cash and non cash. in calculating the sales cost price,
also shall be the entire purchases and stock thereof.
2) In acquiring a depreciable asset and amortizable Concessions/ rights,
the expenses deducted from the revenue can be conducted only through
depreciation and amortization.
3) The cash system application shall be conducted consistently.
The provision in this paragraph is to provide a confirmation on the bookkeeping system and principles to be conducted consistently.
Paragraph (1) and paragraph (2)
In principle, in order to be able to fulfil the tax obligation on the revenue of an undertaking and free occupation as best as possible, bookkeeping is essential. The law intends to stimulate all Taxpayers to keep books, although it is also realized, that not all Taxpayers are capable of said bookkeeping. The Taxpayers who are allowed not to keep complete books cover Taxpayers whose business/undertaking turn-over on their gross revenues are less than Rp 60,000,000 per year.
For these persons, an open and just method is required, besides the necessity of guidance, in order that they are later on able and capable conducting a bookkeeping. The Calculation Norm is a guideline which can be used as a means for determining the ross turn-over or gross revenue, and finally to determine the net revenue.
Basically, the Calculation Norm is only applied for calculating or determining the net revenue in case of:
- the non-Existent of other letter calculation basis, namely bookkeeping;
- a Taxpayer's bookkeeping, which is apparently conducted incorrectly.
The Calculation Norm is in the form of a percentage or other comparative/ratio figures composed in such a way, based on the result of meticulous research, so that it is.
- specified by undertaking type group
- differentiated in several classifications of towns/places.
- differentiated for Taxpayers whose undertaking turn-over amount to on the gross revenues are less than Rp 60.000,00 from those with more than Rp 60,000,000.-
- the percentage level or comparative/ratio figure is not far from reasonable, but can stimulate the Taxpayer to keep books.
Accordingly, the Calculation Norm constitutes a means to be applied in an emergency, due to lack of another basis, but still accountable in respect to its simplicity, openness and reasonableness. The Calculation Norm is very helpful to Taxpayers who are still unable to keep books, for calculating the net revenue to be inserted in the Annual Tax
Return. As the Taxpayer himself will determine his tax, the existence of a Norm for calculating several revenues declared previously, will be very helpful. Only if it is proved that the Annual Tax Return is incorrect, them the Director General of Taxation shall have the authority to assess the tax based on correct data, by applying the Calculation Norm added by an administrative sanction in the form of an increase.
Said Calculation Norm being open in nature, besides facilitating the implementation of obligation fulfillment for the Taxpayer, simultaneously also prevent the occurrence of arbitrary actions of the Tax administration by estimating an unreasonable revenue amount.
The Calculation Norm concerned shall be prepared and improved continuously as well as issued by the Director General of Taxation, guided by guidelines stipulated by the Minister of Finance.
The guideline stipulated by the Minister of Finance shall Contain:
a. interlinking factors to be applied for determining the amount of:
- turn-over (the number of employees, the number of tables for a restaurant undertaking, the number of machines for an industrial enterprise, the number of rooms for a hotel enterprise, et cetera).
- the gross revenue (the amount of material purchased, the amount of employees' salaries, et cetera).
- the net revenue (the amount of concrete disbursements or the cost of living standard, et cetera).
b. method items to be observed in Composing the Calculation Norm;
c. ways of improving the Calculation Norm.
A Taxpayer as referred to in paragraph (2), who fails to in form as having chosen the net revenue calculation by applying the Calculation Norm, shall be considered as conducting a bookkeeping. In case said Taxpayer is evidently not conducting a bookkeeping then the net revenue shall be calculated by the Calculation Norm, and the tax resulting from said calculation shall be added with an administrative sanction in the form of an increase, as provided in paragraph (7) of this Article.
With this provision, the Taxpayer is stimulated to conduct his bookkeeping properly, correctly and completely. Accordingly, the Calculation Norm shall be developed as good as possible, by observing a good and efficient undertaking. For an honest Taxpayer who in his undertaking does not succeed in obtaining an revenue as a good and efficient undertaking the application of the Calculation Norm can be disadvantageous.
For preventing the application of said disadvantageous Calculation Norm, the Taxpayer can choose to carry out proper, correct and complete bookkeeping, so that the computation of his tax shall be based on the actual condition in accordance with his bookkeeping.
A Taxpayer choosing to calculate his net income by applying the Calculation Norm, shall automatically be able to show, that the turn-over amount of his undertaking or the gross revenue of his free occupation in one year is less than Rp 60,000,000 = (sixty million rupiah), which can be proved from the turn-over or gross revenue records kept by him.
According to this provision, the net revenue shall be calculated based on the Calculation Norm in respect to Taxpayers who:
a. have the obligation to carry out bookkeeping, but do not carry out bookkeeping as stipulated by the law;
b. have the obligation to keep records on the gross turn-over or gross revenue, but fail to keep the records as obligated.
c. are not willing to show their books or records as well as other proofs demanded by the Director General of Taxation.
It should be emphasized, that those having the obligation to carry out a bookkeeping shall be Taxpayers, whose undertaking turn-over or gross revenues amount to. Rp 60,000,000.- (sixty million Rupiahs) per year, and Taxpayers whose undertaking turn-over or gross revenues are less than Rp 60,000,000.-(sixty million rupiah) per year, but choose or are considered to have chosen to carry out bookkeeping.
The Income Tax resulting from the net income calculated by applying the Calculation Norm as referred to in paragraph (1), shall be added by an administrative sanction constituting an increase as provided for in Article 13 paragraph (3) of Law Number 6 Year 1983 on General Provisions and Procedures on Taxes.
The provisions in this Article provide for a Special Calculating Norm for certain Taxpayer Categories, based on a Decree of the Minister of Finance.
In practice, difficulties are often faced in calculating the revenue amount and taxable income for certain Taxpayer Categories, so that based on practical considerations, by this law, the Minister of Finance is authorized to issue a Decree on the determination of a Special Calculation Norm for calculating the net revenue, which shall automatically serve as the calculation basis of the taxable revenue amount for said certain Taxpayer Category.
The taxable revenue shall constitute the calculation basis for determining the Income
Tax amount owed.
As inserted in Article 2 paragraph (2), 2 (two) categories of Taxpayers are identified.
Domestic Taxpayers and Foreign Taxpayers
For domestic Taxpayers, there are 2 (two) methods for determining the taxable income amount:
- the ordinary calculation method
- the calculation method by applying the Calculation Norm.
The Ordinary calculation method
- Income obtained in a certain fiscal year according
to Article 4 paragraph (1) Rp 50,000,000.-
- Expenses according to Article 6 paragraph (1):
expenses for obtaining, collecting and
maintaining the income Rp 30,000,000
depreciation and amortisation Rp 6,000,000
contribution to Pension on fund Rp 1,000,000
- Net Income Rp 13,000,000.-
- Compensation of previous years' losses Rp 2,000,000.-
Taxable Income (for entities,besides cooperatives) Rp 11,000,000.-
- A cooperative entity is allowed to deduct
reimbursements for the Operation Result Balance
obtained from activities of and for the members.
- Deduction for the individual Taxpayer
Article 7 Paragraph (1), for example a Taxpayer
is married, with 2 (two) children Rp 2,400,000.-
- Taxable Income Rp 8,600,000.-
The application of the Calculation Norm shall be carried out on certain Taxpayers,
namely Taxpayers whose undertaking turnover on gross revenues of their occupation
in a year are less than Rp 60,000,000.- (sixty million rupiah).
For Taxpayers, whose undertaking turn-over or the gross revenues of their occupation
in one year are less than Rp 60,000,000.-(sixty million rupiah), according to the provisions,
of this law, shall not be obliged to keep books.
Towards them, the calculation of the taxable income shall be conducted by applying the
However, if desired by the Taxpayer, the calculation of the taxable income can be
conducted by the ordinary calculation method as referred to in paragraph (1) with
the provision that they carry out bookkeeping as provided for in this law.
(Vide elucidation on Article 14)
For domestic Taxpayers the income Tax tariff shall be applied to the entire income received or obtained in one fiscal year, by a very simple system.
Taxable Income amount Rp 80,000,000.-
The Income Tax owed:
15% x Rp 10,000,000 = Rp 1,500,000.-
25% x Rp 40,000,000 = Rp 10,000,000.-
35% x Rp 30,000,000 = Rp 10,500,000.-
Taxable Income amount Rp 80,000,000 Tax Rp 22,000,000.-
The taxable income strata limit is referred to in said paragraph (1) shall be adjusted to an adjustment factor, among other things the inflation rate.
The Minister of Finance is authorized to issue a decree regulating said adjustment factor.
For example, the taxable income amounts to Rp 1,050,650.- (one million fifty thousand six hundred fifty rupiahs), so, applying the tariff, the taxable income is rounded-off to Rp 1,050,000.- (one million fifty thousand rupiahs).
For example an unmarried individual whose subjective tax obligation as a domestic Tax Subject is 3 (three) months, and within said period has obtained an income amounting to Rp 1,000,000.- (one million rupiah), then the calculation of the income Tax shall be as follows:
The income during 3 (three) months Rp 1,000,000.-
The income in one year amounts to 360
---------- x Rp 1,000,000.- Rp 4,000,000.-
3 x 30
Non taxable income Rp 960,000.-
Taxable income Rp 3,040.000.-
The Income Tax owed (one year)
15% x Rp 3,040,000.- Rp 456.000.-
So the Income Tax owed during a
part of the fiscal year, namely
during 3 (three) months, shall be: 3 x 30
---------- x Rp 456,000.- Rp 114,000.-
This Law authorizes the Minister of Finance to issue a Decree on the ratio amount between the liability and the capital of the Company, justifiable for tax calculation purposes in business circles, there is a certain reasonable ratio level in respect to the extent of liability and capital (debt equity ratio). If the ratio between debt/liability and capital is very substantial (above the limit of reasonableness), then said company is in unsound condition.
In such a case, the law assumes the existence of disguised capital.
The aim of the insertion of this provision is to prevent the occurrence of tax avoidance, which can occur due to the existence of a special relationship.
In case a special relationship exists, the possibility may occur that revenue is reported
below an appropriate level, or expenses are overcharged, if a transaction is effected among the parties concerned. Likewise, the possibility may occur of a disguised capital participation, by declaring said capital participation as a liability/debt.
In such a case, the Director General of Taxation is authorized to redetermine the revenue amount and/or expenses which should appropriately occur, if no special relationship exists between said parties.
Likewise, if based on the examination conducted, apparently disguised participation or capital, as if debts, are existing, then the Director General of Taxation shall be authorized to determine said debt(s) as the company's capital.
Accordingly, the interest paid in connection with the debt which assets constitutes capital participation, shall not be allowed to be deducted, whereas for the interest received or obtaining to a shareholder, it shall constitute taxable income. In Article 6 paragraph (1)(a), interest constitutes an expense allowed to be deducted from the income, however, dividends paid-out to the shareholder may not be deducted.
A special relationship is considered as existing if there are two or more Taxpayers under the same ownership or control. Meant by this ownership or control, is if the person owning said undertakings is holding the majority of shares, which can affect the undertaking's operations.
A special relationship can also be formulated as follows:
- Entity AA has a participation in undertaking BB amounting to 25%
(twenty-five per cent), so AA and BB have a special relationship.
- An individual YY has 25% (twenty-five per cent) participation in
undertaking AA and also 25% (twenty-five per cent) participation in
undertaking BB, so that between YY, AA and BB a special relationship
Meant by one degree straight blood line family relationship shall be father, the mother and child(ren), whereas one degree horizontal blood relationship shall be brothers/sisters.
Meant by straight line family relationship by marriage, shall be parents-in-law and step-child(new), whereas one degree horizontal family relationship by marriage, shall be brother/sister-in-law.
In case there are several parties having special relationships with 50% (fifty percent), participation or more, the lowest 15% (fifteen per cent) tariff can be applied only once.
In case one of the parties suffers a loss, said loss can not be compensated against the income of the other party(ies), but the vertical compensation shall apply as referred to in Article 6 paragraph (3).
In case of inconsistency between cost elements with the income due to conspicuous price development, the Government can make adjustments, for example by applying an indexing.
Tax payments in the current year, in order that at the end of the year it approaches the indebted tax amount, shall be effected by:
a. deduction and collection of tax by other parties in the event revenue is obtained by the Taxpayer from (work in employment relationship and occupation) as referred to in Article 21 of this Law, and the deduction of tax on the revenue of capital and certain services as referred to in Article 23 of this law.
b. Besides tax settlement through deduction or collection of tax by other parties, the Taxpayer himself shall also be obliged to effect payment in the current year as referred to in Article 25 of this law.
The settlement of tax in the current year shall constitute installments of tax payments, which in due course can be calculated by means of crediting against the Income Tax indebted in respect to the entire fiscal year concerned.
The party obliged to deduct Income according this provision Tax, or called the tax deduction, shall be:
a. the company of an individual or the entity constituting a parent company or company's branch, which pays salary, wages, honorarium and other remuneration to employee(s) or other person(s), with the provision that the work is performed in Indonesia. In the concept of work providers they are not necessarily Tax Subjects according to this law but can also be any person or entity, in an employment relationship, paying a salary wages, et cetera;
b. for example, the salary paid to an employee of an Embassy of the Republic of Indonesia abroad, as it is charged to the State Treasury, the Income Tax shall be deducted. In the concept of State Treasury, is included the Regional Administration Treasury.
c. A pension fund entity paying pension money paid to civil servants or pensioned employees as well as to their heirs. In the concept of pension, are included allowances, both paid-out periodically and not
d. Companies or entities, in case there is a payment to an expert personnel or expert personnel association as a domestic Taxpayer for services, performed in Indonesia. In the concept of company, Government agencies are included, and in the concept of entity, foreign state representative bodies and international bodies are included.
The amount from which tax is deducted, shall the part of the monthly revenue exceeding one twelfth of the non-taxable income as referred to in article 7, for example in the case of a married employee with 3 (three) dependents, the non-taxable income is Rp 2,880,000.- (two million eight hundred eighty thousand rupiahs) or each month Rp 240,00.- (two hundred forty thousand rupiahs) If the revenue of said employees amounts to Rp 250,000.- (two hundred fifty thousand rupiahs)per month, their the revenue from which tax is deducted, shall amount to Rp. 10,000.- (ten thousand rupiahs)
Consistent with the nature of the Income Tax as a personal tax and not a material tax, meaning that the Taxpayer's, family, who are fully dependent, shall also determine the amount of the Income Tax owed, so the correctness of the Taxpayer Statement Letter in respect to the composition of Payer, Statement Letter in respect to the composition of his family is absolutely necessary. As a comparative means the Taxpayer's Family Card can also be used issued by the local Regional Administration.
In the Manual of the Director General of Taxation a table is inserted which can be used by the work providers/employers to deduct the Income Tax amount to be deposited to the State Treasury.
If the employer has deducted and deposited of the Income tax correctly, then at the end of the fiscal year, said employees or the persons whose Income Tax has been deducted, shall not be imposed with the obligation to submit an Annual Tax Return.
In other words, the Income Tax correctly deducted shall be declared as final pursuant to the provisions of this law.
Employees having other income besides their wages/salary are obligated to fill out and submit an annual Tax Return. The obligation on submitting the annual Tax Return shall also be applied to those persons who receive or obtain income from work from more then one employer.
In order to facilitate the implementation of Income Tax deduction by the paying party, the Director General of Taxation shall publish an Income Tax Deduction manual.
This provision regulates the authority of the Minister of Finance to appoint certain entities, both private as well as Governmental, as collectors of Income Tax, which has been greatly limited for reducing excessive advance collections. The Income Tax is levied on Taxpayers performing undertaking activities with or through said collectors.
This law firmly stipulates, that only from undertaking/business activities in the import sector and undertaking activities in other sectors obtaining payments of goods and services from the State Revenues and Expenditure Regional Revenues and Expenditures Budget, conducted with or through the designated collectors Income can be collected.
Meant by the payment of goods and services from the state budget shall be the payments of goods purchases and payments of services compensation, by using State Finances, both the Central Government as well as the Regional Administration.
The amount of said Income Tax collected shall automatically be determined in such a way, that it approaches the income Tax amount owed by the relative Taxpayer.
For that purpose the Minister of Finance is authorized to stipulate the basis and amount of the collection, which is adjusted to the amount of income Tax which will be owed for the whole fiscal year pursuant to this law.
The payment of dividend, interest, rental, royalty, remuneration of technical services and management services, constituting income, shall be settled in the current year, through deduction by the domestic Taxpayer entity in Indonesia or the Government entity effecting said payment. The payment of interest and other remunerations related to the borrowing of money from Banks or other financial institutions, non Income Tax shall be deducted by the paying party.
The tariff applied here is the lowest tariff, namely 15% (fifteen per cent) the Taxpayer whose Income Tax is deducted, still has to submit the annual Tax Return for calculating the tax owed for his entire income in one fiscal year.
Besides entities, both private as well as governmental, individuals as domestic taxpayers can also be designated by the Director General of Taxation for deducting the Income Tax, from the payments mentioned above.
The authority to designate an individual to serve as tax withholder on the income of this capital shall rest with the Director General of Taxation.
Individual persons shall be under obligation to deduct the tax since they are designated by the Director General of Taxation.
Meant by certain interests and dividends in this paragraph shall be:
a. Interest paid by a bank or Post Office on the savings of small savers,
b. Dividend received or obtained by the holders of PT Danareksa Share Certificates, of which the amount does not exceed an amount stipulated in a Government Regulation. This provision is intended for small savers or holders of the PT Danareksa Share Certificates of which generally the income received or obtained in one year does not exceed the non taxable tax amount.
If towards said small savers or share certificate holders tax is deducted then said matter shall become a burden for them to handle the reimbursement thereof.
The exemption of Tax deduction on said interest and dividend does not mean that the interest and dividend are exempted as a Tax Object, but will be imposed with tax, if the interest or dividend amount exceeds the non-taxable income.
Foreign Income Tax is the tax collected abroad on income received or obtained there, constituting a part of the whole income on which Income Tax is imposed in Indonesia.
The foreign Income Tax which can be credited is the Income Tax on foreign income of a domestic Taxpayer.
Accordingly, the foreign Income Tax imposed on a foreign entity paying dividends, can not be credited on the tax of an Indonesia Taxpayer receiving said dividend.
In other words, the Income Tax credited from the tax owed in Indonesia, shall only be the Income Tax directly imposed on the income received or obtained by the domestic
Taxpayer concerned. A domestic Taxpayer shall be imposed with tax on all income wherever obtained from an income source abroad.
On said income obtained from abroad, automatically imposed with tax by the country of origin of said income. The Income Tax paid in said foreign country can be credited against the whole Income Tax owed, as long as it is in respect to the same fiscal year.
In other words, for the Income owed, the Income Tax indebted can be deducted, in the same fiscal year.
1. An Indonesian Consultant A has worked for one year in the Philippines and
has obtained remuneration (fee) for the services performed there, amounting to X.
The Tax imposed in the Philippines on said fee, is for example 15% of X.
So said amount of 15% x X can be credited against the whole Income Tax owed
2. An individual B deposits his money in a bank in England, the interest of the
deposit received, amounts to Y.
The tax tariff on deposit interest there, is for example 30%. So said amount of
30% X Y can be credited against the whole Income Tax owed by B.
3. PT. AB in Indonesia is the sole shareholder of Z incorporated in the USA. For
example Z Incorporated gains a profit amounting to .............. US$ 100,000.-
Income Tax on Z Incorporated
(corporate Income Tax) 48% ............. US$. 48, 000.-
US$. 52, 000.-
The tax on dividend is for
example 38%: US$. 19,760.-
Dividend remitted to Indonesia ---------------------
The Income Tax which can be credited against the whole Income Tax owed by PT. AB
is the tax directly imposed on the income received or obtained abroad, in the above
example, namely to the amount of USS. 19,760.- The Income Tax (Corporate Income Tax)
on Z, Incorporated amounting to US$ 48,000.- cannot be credited against the Income Tax
owed by PT. AB, as said tax amounting to US$. 48,000.- is not on the income received
or obtained by PT. AB from abroad but the tax imposed on the profit of Z Incorporated in
Foreign Income Tax which can be credited against the Income Tax owed, shall be to the amount of the Income Tax actually owed (for a Taxpayer applying the accrual system) and already paid (for a Taxpayer applying the Cash System) abroad, with a maximum of the amount of the result of the Indonesian tax tariff application, against said foreign income, calculated according to this law.
This constitutes a confirmation, that the income as referred to in Article 26 of this law, originates from an income source in Indonesia (provisions on income source). This provision on income source shall also apply to several other types of income having a relationship with the income as referred to in Article 26 for example in case of income related to an asset (in the form of rental), according to the provision on the source adopted by Article 26 of this law it shall be the income obtained in the country where said asset is used. Other types of income related to said asset, for example in case said asset is sold, the profit from the sale of said asset, constitutes income obtained in the country where said asset is located or utilized, because in said country the sale is taxed, so its source is located in the country where the relative sale is
For example, if in 1985 a reduction or refund apparently occurs of the foreign Income Tax in respect to foreign Income Tax year 1984 amounting to Rp. 2,000,000.- (two million rupiah), then said deduction or refund of tax amounting to Rp. 2,000,000.- (two million rupiahs), shall be added to the Income Tax owed in years 1985.
The provisions in this article provide for tax instalment payments by the Taxpayer himself in the current year, which contains the concepts:
a. the amount of the instalment,
b. the calculation basis of the instalment amount.
For facilitating the interpretation an example is given of the tax payment instalment calculation for year 1985, as follows:
The Income Tax owed in fiscal year 1984: Rp. 10,000,000 Deducted by:
a. Income Tax deducted by the employer Rp. 3,000,000.-
b. Income Tax collected by other parties from
undertaking activities Rp. 2,000,000.-
c. Income Tax deducted by other parties on income
of capital (rental, interest etc) Rp. 500,000.-
d. Credit of foreign
Income Tax .......Rp. 1,000,000.- Rp. 7,000.000.-
Result Rp. 3,000.000.-
This result amounting to Rp. 3,000,000.- shall be distributed over the number of tax
periods in year 1985.
If the tax period applied for settling the tax in the current year is one month, then in one
fiscal year there will be 12 tax periods, and so the instalment amount for each tax
--------------------- = Rp. 250,000.-
By the introduction of the renewal of this tax law, if the Taxpayer's annual Tax Return has been filled-out appropriately, and the calculation of the tax is correct, and the owed tax has been settled, then no tax assessment will be issued by the Director General of Taxation.
If a tax assessment is issued by the Director General of Taxation, then this means, that the tax owed according to the annual Tax Return and what has been paid or settled by the Taxpayer, is apparently less, than it should be according to the law.
Accordingly, if there is a tax assessment, then the concept Income Tax owed shall be based on said tax assessment.
Except if in the next year, the Taxpayer's income increases and the tax is calculated correctly, then the Income Tax owed according to the annual Tax Return of the next year will be larger.
The tax instalment amount in the current year, after it has been settled by the Taxpayer himself, shall be the tax according to the annual Tax Return of the following year divided by twelve. Therefore, in principle the Income Tax owed shall be the Income Tax amount known from the last fiscal year.
If the Income tax owed according to the annual Tax Return submitted, is smaller than the tax already deposited during the relative fiscal year, and accordingly the Taxpayer submits a request for refund of the excessive tax payment or a request for applying it against other tax liabilities, before being decided by the Director General of Taxation in respect to the refund or setting-off said excess, the monthly instalment amount shall be the same as in the months before said annual Tax Return is submitted.
After a decision of the Director General of Taxation has been issued, the instalment of the following month, after the date of said decision, shall be based on the tax amount owed according to said decision. If the tax owed according to the assessment on the last Annual Tax Return Contains a compensation of the loss of previous years, then the tax serving as the basis for determining the instalment amount in the current year, shall be recalculated based on the tax owed before the loss compensation. In case the assessment or the annual Tax Return is not available, because the Taxpayer is a new Taxpayer, then the arrangement of the instalment amount as an estimate of the tax amount to be owed, shall be regulated in a Government Regulation pursuant to Article 27 of this law.
The amount of the tax instalment in the current year, which shall be paid by the Taxpayer himself for each tax period, shall as best as possible be endeavored to be consistent with the amount of tax owed for the relative tax period. For a financial institution as Taxpayer, for example, the amount of this instalment would be more consistent, if based on the latest Financial Statement, whereas for a State Owned Corporate Body/BUMN and Regional state Owned Corporate Body, it shall be based on the Company's Revenues and Expenditures Budget Bill of the relative fiscal year. The kinds of undertakings/enterprises can calculate the amount of tax installments for each tax period by applying basis other than the annual Tax Return or the latest Tax assessment, will be stipulated by a Government Regulation.
This article provides for the tax deduction for a foreign Taxpayer, obtaining the following matters:
a. the tax deduction basis shall be the gross amount of said payments to the foreign Taxpayer;
b. the tax tariff, shall be 20% (twenty per cent);
c. the nature of the deduction, namely that said Income Tax deducted, shall be final in nature.
Obliged by this law to deduct tax, shall also be individual Taxpayers paying or owing interest, dividend, et cetera. Final shall mean, that the Taxpayer is not obligated any longer to submit an annual tax Return, which is different from the term "settled" in the new system, meaning that the Taxpayer is still obligated to submit an annual Tax Return.
By Government Regulation is further regulated the fulfillment of the tax obligation as referred to in Article 21, Article 23 and Article 25, including the application of the prorate tariff on income in the form of severance pay and pension redemption money received or obtained in one lump sum.
In respect to income Tax which is settled in full in the Current year, both which is paid by the Taxpayer himself as well as that collected or deducted by other parties, the total amount thereof will be credited against the Income Tax owed.
The Income tax owed: Rp 10,000,000.-
- Tax deducted from work based on Article 21 Rp 1,000,000.-
- Tax collected by other parties on income from undertakings
based on Article 22 Rp 2,000,000.-
- Tax deducted by other parties on income from capital
based on Article 23 Rp 1.000,000.-
- Tax credit on foreign income tax Article 24 Rp 3,000,000.-
- Payment by the Taxpayer himself based on Article 25 Rp 2,000,000.-
- The total income tax amount which can be credited Rp 9,000,000.-
Income Tax still to be paid Rp. 1,000.000,-
In the example as presented in the elucidation on Article 28 the shortage or the Income Tax owed, amounting to Rp 1,000.000.- (one million rupiah) shall be fully settled before submitting an annual Tax Return, namely at the latest at the end of the third month after the relative fiscal year has expired.
Each annual Tax Return submitted by a Taxpayer conducting an undertaking activity or free occupation or with a gross revenue of Rp. 60,000,000.- (sixty million rupiahs) or more, shall be accompanied by a Financial Statement.
The obligation to submit an annual Tax Return, constitutes an obligation to implement the provisions on the tax imposition to be transformed into tax payments to the State Treasury Office. Accordingly, this law stipulates that the annual Tax Returns shall contain data which can be used as basis for determining the amount of income Tax owed, as well as the shortage or excess of tax payment.
In principle, each Taxpayer shall be under obligation to submit an annual Tax Return.
This obligation shall not apply to individual Taxpayers:
a. who do not have other income from work as referred to in Article 21, except individual Taxpayers who obtain income from work from more than one employer.
b. who receive or obtain a net income not exceeding the nontaxable income amount, for example: a married Taxpayer with 3 family dependents whereas his wife does not earn an income from work or an undertaking, then the non-taxable income shall amount to Rp. 2,880.000.- (two million eight hundred eighty thousand rupiahs) or less then he shall not be obligated to submit an annual tax Return.
By this provision it is intended, that taxpayers who have calculated and paid the tax amount owed correctly pursuant to the provisions of this law, and have declared it in the annual Tax Return, no Tax assessment Letter nor a decision letter from the tax administration, need to be issued.
If later on it is learned, based on an audit result, or based on information obtained other than from an audit, that the tax calculated and reported in the annual Tax Return concerned is incorrect, for example the cost charge apparently exceeds the actual amount then the Director General of Taxation shall determine the appropriate amount of the owed tax, according to the law.
Excessive tax payment can be refunded or calculated against other tax liabilities;
The Income Tax owed: Rp 10,000,000.-
- Tax deduction from work based on Article 21 Rp 1,000,000.-
- Tax collection by other parties on income from an undertaking
based on Article 22: Rp 4,000,000.-
- Tax deduction by other parties on income from capital
based on article 23 Rp 1,000,000.-
- Payment by the Taxpayer himself in the current year
based on Article 25 Rp 6,000,000.-
Total amount of Income Tax which can be credited: Rp. 2,000,000.-
Excessive tax payment Rp. 2,000,000.-
This excessive tax payment amounting to Rp. 2,000,000.- can be refunded or
calculated against other tax liabilities.
The Director General of Taxation or a designated functionary shall be authorized to conduct an audit on the Financial Statements, et cetera, of the Taxpayers, before effecting a refund or setting off the excessive tax.
The matters which shall serve as consideration material before effecting a refund of or setting off the excessive tax, shall be:
a. the material correctness of the Income Tax owed;
b. the authenticity of the collection proofs, and the deduction of tax by the Taxpayer himself during and for the relative fiscal year.
Accordingly, for the purpose of examination and audit, the Director General of Taxation or other designated functionaries, shall be authorized to conduct an audit on the Financial Statements, books and other records, as well as other audits relating to the determination of the owed Income Tax, the correctness of the taxpayment amount to be refunded. The objective of this audit is to ensure, that the amounts refunded to the taxpayers as restitution actually constitute the right of the Taxpayers.
Meant by other then audits are those covering local inspection, verification with other parties having a relationship with the Taxpayer, et cetera.
As set forth in the General section of this elucidation, the provisions pertaining to the tax imposition procedure, are provided for in Law Number 6 Year 1983 on General Tax Provisions and Procedures regulating the procedures on collections relating to errors, non adherence, violations and criminal acts, except if the tax imposition procedure is determined otherwise in this law.
For a Taxpayer whose fiscal year is the book year, there is possibility that a part of that fiscal year is covered in the calendar year 1984.
According to the provision of this paragraph, if 6 (six) months of said fiscal year an included in the 1984 calendar year, then the Taxpayer is allowed to choose, whether he desires to apply the Income Tax Ordinance 1944 or the Corporate Tax Ordinance 1925, or to choose the application of the provisions contained in this Law, The opportunity for such a choice shall also apply to a Taxpayer, for 6 (six) months or more whose fiscal year are included in the Calendar year 1984.
A tax facility of which the period is limited for example the tax facility pursuant to Law Number 1 Year 1967 on Foreign Investment, and Law Number 6 Year 1968 on Domestic Investment, granted up to and including December 31, 1983, can still be enjoyed until the expiration of said tax facility.
A tax facility of which the period is not deferred, can not be enjoyed anymore as from the date this Law comes into force, such as for example:
- the tax facility granted to PT Danareksa, constituting Corporate Tax
exemption on the business activity, and exemption of Capital Stamp
Duty or the subscription and deposit of share capital pursuant to the
Decree of the Finance Minister No. KEP-1680/MK/II/2/1076 dated
December 28, 1976;
- Tax facilities granted to Limited Liability Companies selling shares
through the Capital Market, constituting a tariff reduction/relief of
Corporate Tax pursuant to the Decree of the Minister of Finance
No. 112/KMK/04/1979 dated March 27, 1979.
The Corporate Tax Ordinance 1925, and the Tax Law on Interest, Dividend and Royalty 1970, as well as implementation regulations thereof shall remain effective on the taxable income received or obtained in the field of oil, natural gas and mining, conducted with a Work Contract and Production Sharing Contract, as long as said Work Contract and Production Sharing Contract agreements are still effective at the moment this law comes into force.
The provisions of this law shall only apply to taxable income received or obtained in the field of oil, natural gas and mining conducted in the form of a Work Contract and Product Sharing Contract agreements, if said work Contract and Product Sharing Contract Agreements, are drawn up after this law comes into force.
With a Government Regulation matters still insufficiently provided for in this law, will be regulated.
The Government Regulation in question shall concern, among other things:
a. The application of the adjustment factor to calculate the income originating from profit due to the sale of an asset as referred to in article 4 paragraph (1) (d), and the application of the prorated effective Tariff to said profit;
b. Depreciation and amortization guidelines;
c. All regulations regulated in order that this law can be implemented as best as possible, also including the transition regulations.
This paragraph (1) confirms, that the Income Tax Law 1984 shall be effective as from January 1, 1984.
For Taxpayers, whose fiscal year is the same as the calendar year, this law shall be effective for them as from fiscal year 1984.
For Taxpayers applying a book other than the calendar year, this law shall be effective for the book year starting after January 1, 1984.
SUPPLEMENT TO THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 3263
In case of any divergence of interpretation, the orginal of Indonesian text (Law, Circular Letter and Letter of
the Director General of Taxation, Presidential Decree and Minister of Finance Decree) shall prevail.