ABSTRACT
Tax regulations in Indonesia regulate the withholding of Income Tax Article 21 for income received by employees. Income Tax Article 21 is a tax withheld from income in connection with work, services, or activities by name and in any form received or obtained by domestic individual taxpayers.
Income Tax Article 21 deductions must be made by the employer, government treasurer, pension fund, agency, company, and activity organizer. Employees who work for a company can receive income in the form of salaries, bonuses, holiday allowances, benefits in kind, and other benefits. The company will deduct Income Tax Article 21 on the income received by employees every month.
The Directorate General of Taxes (“DGT”) issued regulations implementing the withholding of Income Tax Article 21, namely Government Regulation Number 58 Year 2023 (“PP 58/2023”) and Minister of Finance Regulation Number 168 Year 2023 (“MoF 168/2023”) which came into effect on January 1, 2024. In these regulations, the DGT has changed the procedure for withholding Income Tax Article 21 on a monthly basis for employees using the Average Effective Rate based on the amount of Non-Taxable Income according to the marital status and number of dependents of the employee at the beginning of the tax year.
Prior to the enactment of PP 58/2023 and MoF 168/2023, the calculation of monthly Income Tax Article 21 was carried out by simulating the monthly income received by employees, into 1 (one) full year income by taking into account Non-Taxable Income and income deductions. Such deductions include office expenses and contributions related to pension programs paid by the employee through the company. This simulation method creates complexity for both the company and the employee.
In accordance with PP 58/2023 and MoF 168/2023, Average Effective Rate for the calculation of monthly Income Tax Article 21 is divided into 3 (three) categories, namely:
1. Average Effective Rate Category A is applied to the gross monthly income of employees with Non-Taxable Income status:
· Unmarried without dependents (TK/0)
· Unmarried with 1 dependent ( TK/1)
· Married without dependents (K/0)
2. Average Effective Rate Category B is applied to the gross monthly income of employees with Non-Taxable Income status:
· Unmarried with 2 dependents (TK/2)
· Unmarried with 3 dependents (TK/3)
· Married with 1 dependent (K/1)
· Married with 2 dependents (K/2)
3. Average Effective Rate Category C is applied to the gross monthly income of employees with Non-Taxable Income status:
· Married with 3 dependents (K/3)
The following is an illustration of the calculation of Income Tax Article 21 using Average Effective Rate.
Mr. A works for PT XYZ and gets a monthly salary of IDR 10.000.000 and pays a pension contribution of IDR 100.000 per month. Mr. A is married and has no dependents (K/0). In accordance with Mr. A’s Non-Taxable Income status (K/0), the monthly Income Tax Article 21 deduction will fall into the Average Effective Rate category A.
| Employee Name | Non-Taxable Income Status | Average Effective Rate category | Income per Month (IDR) | Rate | Monthly Income Tax Article 21 (IDR) |
| Tuan A | K/0 | TER A | 10.000.000 | 2% | 200.000 |
Assuming Mr. A works for one full year (January – December), the calculation of Income Tax Article 21 for the last tax period (December) is as follows:
| Description | Total(IDR) |
| Gross Income for The Year | 120.000.000 |
| Deduction:Occupational Expenses(5% x IDR 120.000.000) *max IDR 6.000.000/yearPension Contributions(12 x Rp 100.000) | (6.000.000) (1.200.000) |
| Net Income for The Year | 112.800.000 |
| Non-Taxable Income (K/0) | (58.500.000) |
| Taxable Income | 54.300.000 |
| Income Tax Article 21 Payable for The Year5% x IDR 54.300.000 | 2.715.000 |
| Income Tax Article 21 that has been deducted up to November(11 x Rp 200.000) | (2.200.000) |
| Income Tax Article 21 that must be withheld in December | 515.000 |
In accordance with the illustration above, the application of Average Effective Rate for employees is only used in calculating Income Tax Article 21 for Tax Periods other than the Last Tax Period, while the calculation of Income Tax Article 21 for the Year in the Last Tax Period still uses the rate of Article 17 paragraph (1) letter (a) of the Income Tax Law.
Monthly Income Tax Article 21 withholding using the Average Effective Rate method is expected to simplify the process of calculating monthly Income Tax Article 21 and avoid errors in calculating taxes payable which can result in tax penalties in the future. In addition, it can provide convenience for the Company in calculating and deducting monthly Income Tax Article 21 on employee income.
Tax Consultant can assist the Company to calculate Income Tax Article 21 using the Average Effective Rate method. SW Tax Consulting is experienced in assisting clients to calculate Income Tax Article 21 correctly and in accordance with the prevailing tax regulations in Indonesia. Proper and measurable compliance improves our clients’ focus on their core business.
