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:
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Personal Income Tax Bracket |
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With NPWP |
Without NPWP |
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| 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.
