Indonesia Imposes Stricter Penalties for Tax Non-compliance

Indonesia Imposes Stricter Penalties for Tax Non-compliance

  • InCorp Editorial Team
  • 15 September 2023
  • 7 minute reading time

Tax compliance in Indonesia requires Individuals and corporations that have acquired a Tax ID (NPWP). The document will record your tax obligations, such as wages, dividends, revenues, and other income sources, to file a tax report with the Indonesian tax authorities.

Annual Tax Reporting in Indonesia

Annual Tax must be paid to the Indonesian tax body, the Directorate General of Taxes (DGT), every year. To submit the annual tax filing in Indonesia, one must first register as an individual or a corporation. Given Indonesia’s frequent and abrupt changes in tax legislation, the registration will necessitate submitting several documents. Note that Individuals and corporations are required by Indonesian law to file a tax report with the Indonesian Tax Authority.

Through Circular Letter Number 4/2021 regarding the Implementation of Terms in Criminal Offenses Related to Tax, the Indonesian Supreme Court of Justice imposed harsher penalties on November 29, 2021. This article will go over the most crucial points to remember regarding tax compliance in Indonesia and how to avoid penalties.

Tax Compliance in Indonesia: Important Things To Know

Tax Calculation

Indonesia employs a self-assessment system in which taxpayers are entrusted to calculate, pay, and report their taxes in line with applicable laws and regulations. The DGT, however, may send tax assessment letters to a specific taxpayer if it discovers that, based on additional information provided by a tax auditor, the taxpayer has not fully paid his taxes.

Another factor that may lead to the DGT issuing an official tax assessment is the failure to keep books in compliance with the established standards.

Tax Payment and Filing Obligations

Tax liabilities for a specific time of year are generally paid to the State Treasury through an authorized tax-payment bank (bank persepsi) and then reported to the DGT office through the submission of relevant tax forms.

Depending on the tax obligation, tax payments and returns must be filed electronically, either monthly or annually. Direct payments, third-party withholdings, or a mix of the two can be used to meet corporate tax liabilities.

If the entire amount of Tax paid in advance for the year is less than the total amount of CIT payable, the firm must make up the difference before completing its CIT report.

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Annual Tax Reporting in Indonesia

Every year, companies are required to pay Annual Tax to the Indonesian Directorate General of Taxes (DGT). Individuals and corporations must first register with the DGT to submit the Annual Tax Report.

What Are Taxes Applicable in Indonesia?

Indonesia’s rich landscapes and vibrant culture are matched by a complex tax system, essential knowledge for residents and visitors alike. Grasping the applicable taxes is crucial for informed financial decisions and compliance. Here are the primary taxes you should be aware of:

1. Income Tax 

Indonesian residents face progressive tax rates on global income, while non-residents are taxed solely on Indonesian-sourced income, ranging from 5% to 30%, depending on earnings.

2. Value Added Tax (VAT) 

Known as “Pajak Pertambahan Nilai” (PPN), VAT applies 10% to goods and services, with specific exemptions and reduced rates.

3. Corporate Income Tax 

Companies are subject to a 25% corporate income tax on global income, though specific sectors and regions can access incentives and reductions.

4. Withholding Tax 

Non-residents face withholding Tax on payments, including dividends, interest, royalties, and services. Rates vary based on the payment nature and applicable treaties.

5. Land and Building Tax 

“Pajak Bumi dan Bangunan” (PBB) is based on property ownership, with rates varying by property type and location.

5. Customs and Excise Duties

Import and export duties apply to goods, with rates dependent on type and trade agreements.

6. Luxury Goods Sales Tax 

High-end items like luxury cars and electronics incur this Tax, necessitating consideration in luxury purchases.

7. Motor Vehicle Tax 

Annual Tax on vehicles, determined by type, size, and age.

Corporate Tax in Indonesia

Corporate Tax in Indonesia is the Tax imposed on companies’ earnings. The standard rate is 25% of net income. However, rates can vary based on industry, location, and incentives. International companies should consider tax treaties for cross-border transactions. 

Understanding corporate Tax helps businesses budget and comply with the law. Consulting tax professionals is advised for accurate calculations and timely filing.

For companies operating in Indonesia, corporate Tax is imposed on earnings within the country, with a standard 25% rate. Varied rates apply based on industry, location, and incentives. International companies should consider tax treaties for cross-border transactions. Understanding corporate tax aids compliance and accurate calculations, often necessitating consultation with tax professionals.

Navigating Tax Compliance in Indonesia

With Indonesia’s frequent tax legislative changes, registration involves submitting specific documents. By law, individuals and corporations must file tax reports. As of November 29, 2021, Circular Letter No. 4/2021 imposed stricter penalties for tax-related criminal offenses.

Tax Calculation and Payment

A self-assessment system is employed in Indonesia, where taxpayers compute, pay, and report taxes based on laws and regulations. Failure to comply with standards can lead to official tax assessments.

Tax Payment and Filing

Tax liabilities are paid to the State Treasury through authorized tax-payment banks, and returns are submitted to the DGT office via relevant tax forms. Electronic filing is expected monthly and annually, with various methods to meet corporate tax liabilities.

Tax Payment and Reporting Deadline

Various taxes have distinct monthly and annual deadlines for payment and filing, which is essential to avoid penalties.

Type of TaxMonthly Payment DeadlineMonthly Filing DeadlineAnnual Filing Deadline
CIT15th of the month20th of the month4th month following the conclusion of the tax year
Individual Income Tax15th of the month20th of the month3rd month following the conclusion of the tax year
Employee Withholding Tax10th of the month20th of the monthN/A
Other Withholding Taxes10th of the month20th of the monthN/A
VAT & LGSTBefore the VAT return filing deadlineEnd of the monthN/A

Penalties for Tax Non-compliance in Indonesia

The Supreme Court of the Republic of Indonesia published Circular Letter No. 4 in 2021 about the Implementation of Terms in Tax-Related Criminal Offenses, which has been in effect since November 29, 2021, and states the following clauses:

  • Regarding requesting termination of prosecution, the district court should prosecute a pre-trial involving a criminal offense in taxation where the investigator or public prosecutor is domiciled.
  • The criminal culpability of the caretaker and another party of the Criminal Offense in Tax during the Period of such offense is not absolved by the company’s insolvency or liquidation.
  • The Defendant of a Criminal Offense Related to Tax is not eligible for probation.
  • Other (additional) criminal sanctions will be imposed on both individuals and corporations.

Tax-related criminal offenses can occur as a result of:

  • Tax Embezzlement;
  • Failure to file a tax return, whether on purpose or not;
  • Falsifying supporting data for a tax report or submitting an incorrect tax report;
  • Refusal of a tax officer’s inspection;
  • Failure to retain accurate records;
  • Misusing Tax ID.

Late payment and reporting, incorrect submissions, and other non-compliance actions incur penalties, varying by type of Tax and offense.

  • Late tax payment: Monthly fee of 2% for a maximum of 24 months
  • Late tax reporting and Underpayment: IDR 100,000 – IDR 1,000,000 penalty relying on the type of Tax
  • Rejected tax objection: 50-100% of the portion of the underpayment
  • Incomplete, late issuance, non-conforming issuance, or non-issuance of VAT invoice: 2% surcharge
  • Incorrect tax return submission or non-submission: 3-12 months in jail or a fine of 200% of the unpaid Tax
  • Embezzlement, fraud, and improper bookkeeping of export and import activities: a maximum sentence of six years in jail or a fine of 200-600% of the actual payments

Make Things Easier with Tax Consulting Services in Indonesia

Many businesses prefer outsourcing the tax compliance in Indonesia of their obligations to Tax Consulting Services. To top it all, outsourcing companies help businesses cut overhead costs, save crucial time better spent on core business, and provide security by using the latest technology to secure your data.

Tsx consulting expert ensures error-free and boosted compliance and full-fledged assistance in strategizing tax planning. Moreover, by outsourcing, one can access a higher level of tax expertise and an efficient document management system.

Stay Compliant with InCorp Indonesia

To ensure client satisfaction, we offer a complete package of tax consulting services, including accounting, tax reporting, and auditing services.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Disclaimer: The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.

We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials.

We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.

Frequent Asked Questions

Yes, however, the calculation is different. Indonesian employees with Tax ID will have to pay the income tax based on the progressive rate after being deducted by non-taxable income tax. Foreign employees with Tax ID will have to pay the income tax based on the calculation between work periods in one year (after 183 days)

Yes, submitting monthly and annual tax reports is mandatory even if your company does not have any business activities, thus zero taxes.