Home Blog Tax System in Indonesia: Major Overhaul Passed Finance | Tax Reporting Tax System in Indonesia: Major Overhaul Passed InCorp Editorial Team 1 November 2021 4 minutes reading time Table of Contents Tax System in Indonesia: Understanding Key Changes in Harmonized Tax Law (HTL) Anticipate Any Major Tax Overhauls with Trusted Tax Consultant in Indonesia Cekindo as Your Trusted Tax Consultant in Indonesia Recently, the Indonesian parliament passed a legislation implementing one of the country’s most comprehensive reforms on its tax system, including an increase in VAT next year, a new carbon fee, and the cancellation of a scheduled corporate tax cut. The new fiscal measures are expected to raise tax income in Indonesia by about USD 9.80 billion in the coming fiscal year, bringing the tax ratio of Southeast Asia’s largest economy to 9.22% of GDP, up from 8.44%, after the COVID-19 pandemic wreaked havoc on state finances for the past two years. In this article, we will highlight what are the key changes introduced in Indonesia’s tax system. Tax System in Indonesia: Understanding Key Changes in Harmonized Tax Law (HTL) Personal Income Tax For people earning over IDR 5 billion each year, the HTL has established a new 35% income tax rate, while a 5% tax rate will apply to annual net income of up to IDR 60 million, up from the previous limit of IDR 50 billion. You can find the details of the new personal income tax bracket based on HTL in the following table: Personal Income Tax Bracket With NPWP Without NPWP Annual Income Threshold Rate Annual Income Threshold Rate < IDR 60 million 5% < IDR 60 million 6% IDR 60 million – IDR 250 million 15% IDR 60 million – IDR 250 million 18% IDR 250 million – IDR 500 million 25% IDR 250 million – IDR 500 million 30% IDR 500 million – IDR 5 billion 30% IDR 500 million – IDR 5 billion 36% > IDR 5 billion 35% > IDR 5 billion 42% In addition, the government will also connect the national register database with the taxation system, allowing residents to replace their taxpayer identification numbers (NPWP) with their national identification numbers (NIK). Corporate Income Tax The government has canceled plans to lower the CIT rate to 20% by 2022, opting instead to keep it at 22%, thanks to the HTL. The percentage is still lower than the average CIT rate in ASEAN (22.17%), G20 countries (24.17%), and OECD (Organization for Economic Cooperation and Development) countries (22.81%). Value Added-Tax The legislation on harmonized tax regulations specifies the most extensive and ambitious reform measures for the Value Added Tax (VAT) system, including expanding VAT goods to extend the tax base, establishing various rates to improve equity, and boosting VAT rates. The normal VAT rate will be raised from 10% to 11% in April of next year, then to 12% in 2025 under the new law. Furthermore, the law would raise VAT objectives by rigorously restricting the negative list or exemptions, to fundamental needs and public services like health, education, finance, and social services, which are utilized by the majority of people. Anticipate Any Major Tax Overhauls with Trusted Tax Consultant in Indonesia If you’re a business owner on a tight budget, outsourcing administrative activities like tax filing might help you save time and money, and you do not have to keep up with the latest overhauls in Indonesia tax system yourself. Engaging with tax consultant in Indonesia has four key advantages: The consequences of filing incorrect tax data may be devastating for a company. Tax consultant in Indonesia offers you access to highly qualified specialists who have worked in the sector before and are up to speed on the latest tax and regulatory developments. You gain access to the newest technology and methods (which would otherwise be prohibitively expensive) to ensure that your data is accurate and safe, in addition to professional expertise. Internal fraud may be reduced by bringing in a third party (tax consultant) to examine the money trail. This third party can also provide objective checks and balances, which will help to improve compliance. Tax consultant in Indonesia provide services that are customized to your unique requirements. As a result, you have the freedom to scale up or decrease the services based on how your business grows. You may save money on accounting software, recruiting, training, office supplies, and other expenditures by partnering with tax consultant in Indonesia. You can also free up important time that might be better spent on daily operations, client acquisition, and team management. Cekindo as Your Trusted Tax Consultant in Indonesia Cekindo, as an accounting firm, offers a comprehensive range of tax consultation services to assist your company in complying with the latest tax system in Indonesia. You may save your operational costs and administrative load while increasing your company’s flexibility and development by outsourcing your accounting and tax duties. Read Full Bio Verified by Dessy Amelia Senior Tax Manager at InCorp Indonesia Dessy has over eight years of experience in tax services, leading InCorp Indonesia's tax team in compliance and strategic solutions. She holds a bachelor's degree in Fiscal (Tax) Administration from Universitas Indonesia and is pursuing a master's degree in Tax Policy and Administration at the same university. She is also a certified tax consultant (USKP C), and a member of the Indonesian Tax Consultants Association (IKPI). Frequently Asked Questions How is pricing determined for your finance, accounting, and tax services? To provide you with accurate pricing information for our finance, accounting, and tax services, we consider the complexities of your inquiries and the dynamic nature of regulations in Indonesia. As a result, the pricing for the services may vary accordingly. For pricing details, please talk to our experts. Should I submit tax reports if my company has been established but has no business activities? Yes, submitting monthly and annual tax reports is mandatory even if your company does not have any business activities, thus owing zero taxes. Is there any foreign exchange control or limitation in Indonesia? Foreign currency transfers to and from Indonesia are not subject to exchange controls, allowing investors to freely move funds. However, these transactions must be reported to Bank Indonesia. Moreover, there are reporting obligations concerning offshore assets and liabilities to ensure transparency in financial activities. Will having a tax ID but never submitting tax reports cause a problem for my company? Yes, you will receive an administrative penalty for delaying or not correctly and promptly filing the tax report. It is best to hire a local third party to handle your taxation matters in Indonesia, such as InCorp. Get in touch with us. 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