Taxation in every country is different. In Indonesia, there are various types of taxes that an individual and/or a company should be aware of. These include corporate income tax, personal income tax, value added tax (VAT), luxury-goods sales tax, and many more.
Financial and Tax Compliance in Indonesia
Despite promising forecasts regarding Indonesia’s economy, financial and tax compliances in Indonesia remain an issue to be addressed. Data shows that the country collects approx. 12% of GDP in tax revenue and millions of people estimated to be failing to meet their tax obligations.
In order to address this challenge and boost tax compliance, some initiatives have been put in place, which include:
Tax Amnesty Scheme
Reduction of Corporate Income Tax (CIT)
Digital Economy Taxation Policies
Compared to other nations, the tax structure for both corporate companies and individuals in Indonesia is relatively low. However, financial and tax compliance in Indonesia still has to meet the government’s expectations.
Fun Fact: Indonesia is Southeast Asia’s largest economy and the 10th largest economy in the world.
Corruption and voluntary compliance in the Indonesia economy is common. The government has been doing their part to eradicate tax evasion in order to ensure that their compliance system aligns with other global economies.
What is Corporate Income Tax
The Corporate Income Tax is a government tax which every company based in Indonesia – regardless of its being local or foreign – is legally bound to pay.
Any foreign-owned company that does not have a permanent establishment in Indonesia but generates income through business activities in the country, will have to settle its tax liabilities through what is known as withholding tax by the Indonesian party providing for the income.
The standard corporate income tax rate in Indonesia is 22%, but is set to be reduced to 20% in 2022. However, there are some tax exemptions for the following companies:
Companies listed on the Indonesia Stock Exchange (IDX) offering at least 40% percent of their total share capital to the public are eligible for a 3% reduction in their tax rate.
Small and medium-enterprises (SMEs) with an annual turnover below Indonesian Rupiah (IDR) 50 billion (about USD $4 million) get a 50% tax discount.
The Finance Ministry regulation has established that individuals and institutional taxpayers with an annual gross turnover below IDR 4.8 billion (about USD $360,000) are to pay a 0.5% income tax rate provided that the following criteria are met:
The individual must reside in Indonesia
He/she needs to reside in the country for more than 183 days within a 12-month period
He/she needs to be present in Indonesia for the duration of the tax year and be committed to reside in the country
Non-residents are subject to a 20% withholding tax on Indonesia-sourced income. Almost all income earned by individuals in Indonesia is subject to income tax.
15% for income between IDR 50 million and IDR 250 million
25% for income between IDR 250 million and IDR 500 million
a flat rate of 30% for earnings exceeding IDR 500 million
Value Added Tax (VAT)
The Value Added Tax (VAT) involves the transfer of taxable goods or the provision of taxable services in Indonesia. Events/services bound to pay VAT are:
Delivery of taxable goods by an enterprise
Import of taxable goods
Delivery of taxable services by an enterprise
Use or consumption of taxable intangible goods/services originating from abroad
Export of taxable goods (tangible and intangible) or services by a taxable enterprise.
The VAT rate in Indonesia is 10%. However, the exact amount may be increased or decreased (with figures ranging between 5% and 15%) according to government regulations. VAT on the export of taxable tangible and intangible goods, as well as the export of services, is fixed at 0% with certain limitations.
Luxury-Goods Sales Tax (LGST)
Introduced in the Suharto era with the aim to create a more just society, the LGST tax establishes that the delivery or import of certain manufactured taxable goods – luxury cars, apartments and houses to name a few – is liable to pay an additional tax.
Currently, LGST rates are set between 10% and 125% (where the law allows for a maximum LGST rate of 200%).
Although the Indonesian law allows import duties to range between 0 and 150% of the imported item value at customs, the highest rate is currently set at 40%. This is mainly a result of Indonesia signing a number of free-trade agreements, effectively scrapping or significantly lowering import duty rates.
Indonesia has the biggest economy in South East Asia, this means that there is potential in the economic growth. Thus, Indonesia has a wide range of goods and services along with better standards of living.
In the city of Jakarta and Bali, there is a large expat community as it is popular amongst tourists and travellers alike.
How do employees pay income tax in Indonesia?Paul Hype Page2021-11-09T14:37:41+08:00
In Indonesia, employees usually pay income taxes through their employer, which deducts it from their salary on a monthly basis. For tax payers resident in Indonesia, the above-mentioned tax rates apply. For non-resident taxpayers, the withholding tax is 20% percent of the gross amount (unless there is a tax treaty in place, in which case the amount may vary).