Tax System

In Indonesia, taxes can be divided into two categories based on the place of collection: central taxes and regional taxes. On the one hand, central taxes are regulated by the central government, mainly handled by the Directorate General of Taxes (DGT) under the Ministry of Finance. Revenues obtained from central taxes are allocated for various national expenditures, including the construction of roads and schools, as well as medical assistance. On the other hand, regional taxes are levied by regional governments at the provincial and district/municipal levels.

Both central and local taxes adopt a self-assessment system, where taxpayers should calculate, pay, and record their own taxes in accordance with applicable tax laws and regulations. However, if the DGT determines that a taxpayer has not paid all taxes based on information collected from tax audits or other sources, the taxpayer may receive a tax assessment letter. The DGT may also issue a tax assessment letter if the taxpayer ignores the warning letter requiring them to submit a tax return within a specified period. In addition, the DGT may issue a formal tax assessment if records are not updated according to the guidelines.

The latest tax system development enacted by the Indonesian Parliament - the Harmonized Tax Law (HTL) or Law No. 7/2021 - has become part of the country's current tax system. When the pandemic has led to the depletion of national fiscal revenue, the purpose of this new law is to increase tax revenue and tax compliance as much as possible to support the country's economic development. It is estimated that the policy can provide up to 250 trillion Indonesian rupiah (15.55 billion US dollars) in tax revenue, or 1.5% of the gross domestic product. Tax maximization is achieved by amending the individual income tax (PIT) rates, canceling the proposal to reduce the corporate income tax (CIT), establishing a new carbon tax, and increasing the value-added tax (VAT) rate. All of these are part of the central taxes, which will be explained below.

As previously mentioned, the taxation system in Indonesia consists of two major categories: central taxes and regional taxes. Central taxes include five types, namely income tax, value-added tax, luxury sales tax, land and building tax (including plantation, forestry, and mining sectors), stamp duty, and carbon tax.

Regional taxes are further divided into two subcategories: provincial taxes and local taxes. Provincial taxes include vehicle tax, vehicle ownership transfer tax, vehicle fuel tax, surface water tax, and cigarette tax. Local taxes, meanwhile, cover hotel tax, restaurant tax, entertainment tax, advertising tax, street lighting tax, non-metallic mineral and rock tax, parking tax, groundwater tax, bird's nest tax, urban-rural land and building tax, and land and building property acquisition tax.

One  Income Tax

The government has the authority to levy income tax on the income of individuals and enterprises. To understand their tax obligations, the law requires people to submit annual income tax returns. There are two types of income tax in Indonesia: Individual Income Tax (PIT) and Corporate Income Tax (CIT).

1.Individual Income Tax (PIT)   

Generally, tax residents are required to pay taxes on their global income. However, the implementation of double taxation agreements can mitigate this issue. The Indonesian government has promulgated Government Regulation No. 9/2021 (GR9/2021) and Ministry of Finance Regulation No. 18/2021 (MoFR18/2021), which amend the Income Tax Law. Among them, a new clause stipulates that foreign citizens who become Indonesian resident taxpayers due to their Indonesian residency status can pay taxes only on income sourced from Indonesia (even if the income is earned overseas) by meeting specific criteria, and they can enjoy this benefit only in the first four years after becoming tax residents. When foreigners earn income abroad and apply the relevant tax agreements between Indonesia and their home countries, the territorial taxation system may not apply. If Indonesian citizens meet specific criteria and reside outside Indonesia for more than 183 days in a year, they may also be required to pay taxes on income sourced from abroad.

In addition, as previously mentioned, one of the changes in the Harmonized Tax Law is the adjustment of individual income tax rates. These changes include: when the taxable income increases from IDR 50 million to IDR 60 million, the tax rate is 5%; when the income exceeds IDR 5 billion, the tax rate increases to 35%.

The following are the tax rates applicable to taxable income based on these changes:

The annual non-taxable income was previously set at IDR 36 million (approximately USD 2,239), but since April 2016, this standard has been raised to IDR 54 million (approximately USD 3,358) to promote household spending and enhance people's purchasing power.

In addition, a large portion of individual income tax is withheld and paid by employers. Employers deduct individual income tax monthly from employees' salaries and other payments. If an employee is a resident taxpayer (living in Indonesia), the above-mentioned tax rates apply. For non-resident taxpayers, the withholding tax is 10% of the total amount (tax amounts may vary if a tax treaty is in place). The individual withholding tax rates are as follows:

Please note that the above withholding taxes are considered as advance payments of corporate taxes only when enterprises owe the above categories of payments to these individuals. In addition, withholding taxes calculated based on sales or revenue are recognized as final taxes.

The following are the withholding tax rates for non-residents:

As mentioned above, in accordance with Article 26, the withholding tax rate for non-residents is reduced from 20% to 10%. The reduced tax rate shall come into effect six months after the promulgation of Government Gazette No. 9/2021.

2. Corporate Income Tax (CIT)

The global income of resident enterprises serves as the basis for taxation. In general, foreign enterprises operating a Permanent Establishment (PE) in Indonesia must fulfill the same tax obligations as local taxpayers.

Taxable business profits are calculated based on normal accounting principles, subject to certain tax adjustments. Generally, all expenditures incurred to obtain, collect, and maintain taxable business profits are allowable for deduction. If expenditures recorded as accounting expenses cannot be immediately deducted for tax purposes, a timing difference arises.

Resident taxpayers and Indonesian PEs of foreign companies must pay taxes in full through direct payments, third-party withholding, or a combination of both. If a foreign company has no PE in Indonesia, the Indonesian party providing the income must withhold taxes from the foreign company to fulfill the tax obligation for income sourced from Indonesia. The fourth month following the end of the fiscal year is the deadline for annual corporate tax payments. Additionally, income tax returns must be filed by the end of the fourth month after the conclusion of the reported corporate tax year. In Indonesia, enterprises typically use the calendar year from January 1 to December 31 as the tax year, although the tax year shall align with the fiscal year stipulated in the company's articles of association.

The basic corporate income tax rate in Indonesia is 22%, generally applicable to net taxable income. However, specific tax systems apply to certain taxable objects or industries. For example, mining companies providing work contracts to oil and gas companies under production-sharing contracts are subject to tax rates specified in relevant contracts, which are typically higher than the standard corporate tax rate and may range from 30% to 45%.

Two  Value Added Tax (VAT)

Indonesia imposes Value Added Tax (VAT) on the provision of services or transfer of taxable goods. The VAT rates are as follows:

Since April 2022, a 11% VAT has been levied on most manufacturers, retailers, wholesalers, and importers, which will increase to 12% by 2025.

The VAT rate for exports of tangible and intangible goods is zero.

The VAT for export of services is zero.

All tax-exempt goods and services are included on the government's negative list. Goods include, but are not limited to, currency, gold bullion, securities, food and beverages supplied by hotels, restaurants, stalls, mining or drilling products and basic staples. Meanwhile, services include insurance services, financial services, religious services, arts and entertainment services, non-advertising broadcasting services, medical and health services, and educational services.

Three  PPnBM

All tax-exempt goods and services are listed in the government's negative list. Goods include but are not limited to currency, gold bars, securities, food and beverages supplied by hotels, restaurants, and stalls, mining or drilling products, and basic staple foods. Meanwhile, services include insurance services, financial services, religious services, art and entertainment services, non-advertising broadcasting services, medical and health services, and educational services. 

1. The following product list includes products subject to luxury goods sales tax:

Motor vehicles. In this case, there are taxable vehicles and exempt vehicles, namely public vehicles or vehicles serving the interests of the entire community and the state, such as ambulances, fire trucks, prisoner transport vehicles, and public transportation vehicles.

2. Luxury residences or dwellings, such as luxury houses, apartments, condominiums, townhouses, etc.

3. Aircraft. In this case, exempt aircraft include those used for state purposes or commercial air transportation.

4. Hot air balloons, without exception.

5. Firearms and ammunition. In this case, exemptions are granted if the firearms equipment is used for state purposes, such as those used by the Indonesian military or police.

6. Luxury shipping, such as cruise ships or yachts. In this case, exemptions are granted if the vessels are used for national interests, public transportation, and tourism businesses.

The following details the luxury goods tariff classifications for the above items:

1. Luxury goods sales tax imposes a minimum tax rate of 20% on taxable goods classified as luxury items, such as:

-Apartments or condominiums

-Townhouses or villa complexes

-Luxury residences used as commercial activity locations

2. Luxury goods sales tax imposes a medium tax rate of 40% on taxable goods classified as luxury items, such as:

-Hot air balloon sets

-Other non-powered aircraft

-Firearms and ammunition (depending on the type), unless used for national interests

3. Luxury goods sales tax imposes an intermediate tax rate of 50% on taxable goods listed as luxury items, such as:

-Aircraft, except those used for state purposes or commercial air transportation

-Helicopters

-Firearms and ammunition (depending on the type), unless used for national interests.

4. Luxury goods sales tax imposes an intermediate tax rate of 75% on taxable goods classified as luxury items, such as:

-Watercraft, such as luxury yachts and motorboats, unless used for national interests or public transportation.

-Watercraft like ferries, unless used for national interests or public transportation.

Four Land and Building Tax

The Law on Fiscal Relations between the Central and Regional Governments (HKPD) regulates regional taxes, including the Land and Building Tax (PBB). Each regional government is required to promulgate a regulation (Peraturan Daerah, or PERDA) to administer the PBB within its territory.

Under the HKPD Law, the Land and Building Tax applies to all lands and buildings, except for the following sectors governed by different laws:

1. Forestry

2. Plantation

3. Mining

4. Other industries located in national waters outside the regional territory.

The HKPD Law stipulates that the maximum PBB tax rate is 0.5%. The amount of tax owed is determined by deducting the non-taxable NJOP (Net Taxable Object Value) from the NJOP of the taxable object, and then applying the tax rate (ranging from 20% to 100%) to the NJOP. The minimum amount of non-taxable NJOP is IDR 10 million. Adjustments must be made by issuing a PERDA.

Five Stamp Duty

Indonesia imposes stamp duty on legal documents of individuals, companies, and other entities. Since January 2021, the regular stamp duty rate has been IDR 10,000 (approximately USD 0.62). In the past, the stamp duty rates were IDR 3,000 (approximately USD 0.18), IDR 6,000 (approximately USD 0.37), or a combination of the above rates.

Stamp duty is mainly levied on two categories of documents: those used as evidence in court and those interpreting civil events.

1、These civil documents include the following:

(1)Agreements, certificates, statements, and similar documents, as well as their copies;

(2)Notarial deeds and general enforcement deeds, as well as their copies;

(3)Deeds executed before a land deed officer (also known as a land transfer officer), as well as their copies;

(4)Securities in any form and name;and

(5)Documents declaring an amount exceeding IDR 5,000,000 (approximately USD 311), specifying the receipt of funds or containing confirmation of partial or full debt repayment.

2、In addition to the above documents, the following civil documents are also governed by law:

(1)Documents related to securities transactions, such as futures contract transactions in any name or form;

(2)Auction records, including excerpts, records, copies, and minutes of the general enforcement deeds of auction; and

(3)Other documents stipulated by government regulations.

3、The following documents are exempt from stamp duty by law:

(1)Documents related to building rights and land transfers for managing and improving social conditions after natural disasters;

(2)Documents related to the transfer of land and building rights for charitable or non-commercial purposes only;

(3)Documents related to the implementation of government plans and monetary or financial policies; and

(4)Documents related to the implementation of international agreements in accordance with binding international treaties or reciprocal laws.

(5)Electronic stamp duty is another issue to consider. Electronic transaction documents with a value exceeding IDR 5,000,000 (USD 350) will require the use of electronic stamps with clear codes and instructions.

However, the Indonesian government is still building the infrastructure needed to handle electronic stamp duty.

Six  Carbon Tax

As a measure to protect the environment from the harmful effects of carbon emissions, the Indonesian government implemented a carbon tax in 2021, though it only came into effect in 2025. The carbon tax applies to individuals or enterprises that purchase carbon-containing goods or engage in activities causing specific quantities of carbon emissions within a specified period. These taxpayers, consisting of the above-mentioned carbon tax subjects and collectors, are subject to reporting, payment, and record-keeping requirements.

The carbon tax rate must be at least equal to the carbon price per kilogram of carbon dioxide equivalent in the domestic carbon market, but not lower than IDR 30 per kilogram of carbon dioxide equivalent. The tax should be paid at the time of purchasing carbon-containing goods, by the end of each calendar year of carbon-emitting activities, or at other specified times. The carbon price will be phased in according to market readiness.

To fulfill carbon tax obligations, taxpayers participating in carbon emission trading and offsetting, as well as other procedures compliant with environmental protection laws and regulations, may be eligible for carbon tax reductions and/or other incentives.

The above information is for reference only and does not constitute professional tax, legal, or other advice. Ziyun Oriental Consulting is committed to becoming a professional institution trusted by clients, with exquisite expertise and industry recognition. It holds tax registration qualifications and specializes in providing international taxation and transfer pricing services, tax planning services, R&D expense additional deduction and various tax incentive applications, tax health check services, final settlement services, and other professional services.