Taxation in Indonesia

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Taxation in Indonesia includes income tax, value added tax (goods and sales tax) and carbon tax.

Indonesian taxation is based on Article 23A of UUD 1945 (1945 Indonesian Constitution), where tax is an enforceable contribution exposed on all Indonesian citizens, foreign nationals and residents who have resided for 183 cumulative days within a twelve month period or are present for at least one day with intent to remain. Generally if one is present less than 120 days, then no tax is owed except on Indonesia source income. Some tax treaties may supersede this or defer to the Indonesia presence test for the year in question. Tax treaties deal with taxation of foreign source income for services rendered in Indonesia which are generally taxed if performed for 120+ days (depending upon treaty) even though one may not be a tax resident. Indonesia has a stratification of taxation including Income Tax, Local Tax (Pajak Daerah) and Central Government Tax.

Indonesia has a series of progressive sliding rate taxes for all categories. Furthermore, as a developing nation, much economic activity is done at the 'cottage' level where sales and services taxation are tax exempt. Indonesia's taxations system recognises the economic reality of the majority poorer citizens and the poor are exempt from almost any taxation. The underlying ethic of "gotong royong" "neighbourly [sic moral] help" is applied where the more fortunate wealthier are enforced to meet their moral obligation of a heavier burden of tax regardless of arbitrary arguments to its fairness. The tax free poverty threshold for Indonesian income earners is also dependent on regions as there exists some disparity between the purchasing power of the Rupiah between regions and intra regionally between larger urban cities and smaller ones. The Capital, Jakarta is considered the most expensive city in term of all goods, services and wages.

Companies in Indonesia are taxed at a rate of 25%, for both domestic and international sourced income. Resident Indonesian companies are required to withhold tax at a rate of 20% from payments to foreign companies.

A company is responsible to pay the obligations for the tax in the case the company’s home country is Indonesia. A foreign company that is operating in an establishment in Indonesia and performs different activities in Indonesia is obligated to pay the taxes that are put by Indonesia. In the case that the foreign company does not have an entity in Indonesia but makes income through different business activities in this country, then tax liability through withholding of the tax by the individual/company that pays the income is imposed. Normal rate of taxation in Indonesia corporate income is 25%. Companies that put a minimum of 40% of their shares to the public and are listed in the Indonesia Stock Exchange offer are taxed on 20%. Companies that have a gross turnover below 50 Billion (IDR) have a discount on 50% from the standard corporate income tax, in other words 12.5%. From the Finance Ministry regulations, companies with gross turnover under 4.8 Billion (IDR) is only 0.5% of the total revenue (in this case not on the profit) since July 2018 (to be paid monthly).

Land Tax and Tax for the buildings constructed thereupon must be paid annually, or may be paid via arrangement in ten year blocks by Indonesian land title deed holders, pursuant to relevant criteria for exclusions. In general terms, this tax is applicable mainly to those of the middle classes and upwards. Land holding businesses must also pay this tax.″—

Land and Constructions thereupon are calculated at a value calculated by the Regional government which is less than real market worth. This calculated value has the caveat of being a legally non negotiable purchase price if the Government wishes to procure said land. In Jakarta, land tax is 10% of Government calculated value. Non Indonesians may not legally own land but may arrange long term assured leases from the Indonesian Central Government. As such, Foreign Nationals may not subject to the Land Tax obligation of Indonesians. Exemptions from Land Tax exist for poorer society. Land Tax calculations are considered a highly specialised skill most especially as the punishments and sanctions for false reportage are very severe and indeed costly.

Passenger Vehicle Tax is required to be paid by all owners, the rationale being those fortunate enough to afford a motor vehicle can afford to subsidise their poorer brethren who rely on far less luxurious public transportation. Again, Regional Government legislates the specific definitions regarding this tax. For the city of Jakarta, the city with the greatest vehicle ownership, most congested city, 1% of current vehicle real agreed market is due annually. Furthermore passenger vehicles with an engine capacity greater than 4 cylinders are taxed again and as are those mass greater than 1500 kilogrammes (commonly four wheel drives and SUV's). Transportation and logistics vehicles, trucks/lorries, buses, vans and utility pick ups are taxed according to axle number, vehicle mass and maximum safe gross loaded weight. Maximum loaded weight inspections are frequent and random and joked colloquially as the Police's cash cow. Petroleum is taxed at a rate of approximately 25% – though remains cheaper than neighbouring developed nations such as Australia or Singapore.

Carbon tax is a new tax come into effect in Indonesia starting July 1st 2022 as part of Indonesia’s tax reform. As one of the non trade fiscal instrument, the carbon tax is aimed to change behaviour, supporting emission decrease and encourage investment and innovation. According to Law No.7/2021 about The Law on Harmonization of Tax Regulations in Indonesia, Carbon tax is imposed on carbon emission that give negative impact to environment. The direction of imposition of carbon tax is in regard of carbon market roadmap and/or carbon tax roadmap which include carbon emission reduction strategy, priority sector target, renewable energy development and harmonization of various other regulation. Carbon tax is imposed with the principle of just and affordable, based on global and national business climate. Carbon tax in Indonesia is set at higher or at the same price of carbon price in carbon market with lowest price of Rp30,00 (0.21 cent dollar at May 2022) per Kilogram Carbon Diokside equivalent (CO2e). The first sector in July 2022 to be charged with carbon tax in Indonesia is coal steam power plant.