On December 27, 2023, the Government of Indonesia issued Regulation No. 58 of 2023 on Article 21 Income Tax Deduction Rates for Income arising from Works, Services, or Activities of Individual Taxpayers ("GR 58"). GR 58 became effective as of January 1, 2024. Following the issuance of GR 58, on December 29, 2023 the Minister of Finance issued Regulation No. 168 of 2023 on Implementation Guidelines for Withholding of Income Tax arising from Works, Services, or Activities of Individual Taxpayer ("Regulation 168").
Article 21 Income Tax rates are governed in Law No. 7 of 1983 dated December 31, 1983 on Income Taxes as lastly amended by Government Regulation in Lieu of Law No. 2 of 2022 dated December 30, 2022 on Job Creation which is made into a law under Law No. 6 of 2023 dated March 31, 2023 (collectively, the "Income Tax Law"). In relation to this, GR 58 and Regulation 168 were issued mainly to simplify the implementation of Article 21 income tax calculation and withholding in relation to works, services, or activities of individual taxpayers in Indonesia.
GR 58 provides the categories of taxpayers and deduction rates for several income tax brackets for each of the taxpayer categories. In this regard, the highlight of GR 58 lies in the introduction of monthly and daily effective rates as the basis to deduct income tax from the monthly or daily payment received by an employee.
Furthermore, as an implementing regulation of GR 28, Regulation 168 provides more detailed guidelines on the calculation of Article 21 Income Tax deductions.
♦ Article 21 Income Tax Deduction Rate and Effective Rates
Pursuant to Article 2 of GR 58, the Article 21 Income Tax deduction rates comprise 2 (two) types of deductions, namely:
- Article 21 Income Tax rates under Article 17(1) letter a of the Income Tax Law (the "Article 17 Rates"); and
- Article 21 Income Tax effective rates (the "Effective Rates").
The Effective Rates may be in the form of (i) the Monthly Effective Rates, or (ii) the Daily Effective Rates. Under Regulation 168, it is stipulated that the Monthly Effective Rates shall be applicable for the deduction of an individual taxpayer who receives his/her income monthly. While the Daily Effective Rates shall be applicable for an individual taxpayer who receives his/her income on a daily or weekly basis.
The application of the Monthly Effective Rates depends on the amount of gross monthly income of a taxpayer based on the income of the taxpayer and is also based on the marriage status and the number of the dependent(s) of the taxpayer in the beginning of the tax year period. For this purpose, GR 58 classifies taxpayers into 3 (three) categories, namely Categories A, B, and C.
♦ Category A Monthly Effective Rates
Category A applies to the gross monthly income received by individuals with the following marital statuses and the number of dependents:
- Single without any dependent (tanggungan);
- Single with 1 (one) dependent; or
- Married without any dependent.
The Monthly Effective Rate for this category starts from 0% for the gross monthly income of up to Rp5,400,000 up to 34% for the gross monthly income of more than Rp1,400,000,000.
♦ Category B Monthly Effective Rates
Category B applies to the gross monthly income received by individuals with the following marital statuses and the number of dependents:
- Single with 2 (two) dependents;
- Single with 3 (three) dependents;
- Married with 1 (one) dependent; or
- Married with 2 (two) dependents.
The Monthly Effective Rate for this category starts from 0% for the gross monthly income of up to Rp6,200,000 up to 34% for the gross monthly income of more than Rp1,405,000,000.
♦ Category C Monthly Effective Rates
Category C applies to the gross monthly income received by individuals that are married with 3 (three) dependents.
The Monthly Effective Rate for this category starts from 0% for the gross monthly income of up to Rp6,600,000 up to 34% for the gross monthly income of more than Rp1,419,000,000.
♦ Daily Effective Rates
The Daily Effective Rates apply to the gross income that are received daily, weekly, in units, or for the completion of work (borongan).
The Daily Effective Rate for the gross daily income of up to Rp450,000 is at 0% (zero percent) and for at 0,5% for the gross daily income of more than Rp450,000.
♦ Subject of Effective Rates
Based on Article 3 of GR 58, the Article 21 Income Tax deduction and the Effective Rates explained above shall be applicable for the deduction of the Article 21 Income Tax of individuals, including government officials, civil workers, Indonesian national army forces, police forces, including the retirees.
Further in Article 3 of Regulation 168, the deduction of Effective Rates also include, among others, retirees, ex-employees (who still receive income for past works), members of board of directors or commissioners who receive their income in untimely manner, as well as event participants.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
