An Individual Taxpayer refers to an individual working as an employee or conducting independent personal service. Any Individual Taxpayer has an obligation to calculate their Tax Payable by the end of the year to find out whether they have outstanding tax or need to ask for a tax refund.
Individual Income Tax Object
The Income Tax Object is income, namely any kind of increased economic ability received or accrued by a Taxpayer derived from within or outside Indonesia, which can be used for consumption or to increase the wealth of the Taxpayer in any shape or form whatsoever.
However, there are several types of income that are not an Individual Income Tax Object, including:
- a. Assistance or donations, including zakat and other religious donations with provisions regulated by or under Government Regulations; and
b. Grants with provisions regulated by or under Regulations of the Minister of Finance, as long as there is no business, work, ownership, or control relations between the parties involved;
- Considerations or remuneration in the form of benefits-in-kind in respect of employment or services received or accrued from a Taxpayer or the Government (but if provided by a non-Taxpayer or certain Taxpayer, they will be counted as income); and
- Other income as specified in the Income Tax Laws.
The steps to calculate Individual Taxable Income are as follows:
First, calculate all income received or earned in one Tax Year and exclude any income that is not a Tax Object and income that has been subject to Final Income Tax. The net income an individual earns in a year can be identified based on the books/records they maintain as an Individual Taxpayer conducting independent personal service, and/or the withholding tax receipt (form 1721) their employer provides to employees.
Second, deduct Non-Taxable Income from net income. The Non-Taxable Income for an Individual Taxpayer is as follows:
- Rp54,000,000 (fifty four million Rupiah) for an Individual Taxpayer;
- Additional Rp4,500,000 (four million five hundred thousand Rupiah) for a married Taxpayer;
- Additional Rp54,000,000 (fifty four million Rupiah) for a wife provided that she files a joint Tax Return as referred to in Article 8 paragraph (1);
- Additional Rp4,500,000 (four million five hundred thousand Rupiah) for every dependent family member related by blood and by marriage in a direct lineage, and adopted child, at maximum 3 (three) dependents for each family.
The Non-Taxable Income will be determined based on the facts and circumstances at the beginning of the Tax Year or the beginning of the section of the Tax Year. From this calculation, we get Taxable Income as the result.
Income Tax Rate
The Income Tax rate for an Individual Taxpayer is as follows:
Taxable Income Bracket
Rp50,000,000 (fifty million Rupiah) or less
5% (five percent)
Over Rp50,000,000 (fifty million Rupiah) to Rp250,000,000 (two hundred fifty million Rupiah)
15% (fifteen percent)
Over Rp250,000,000 (two hundred fifty million Rupiah) to Rp500,000,000 (five hundred million Rupiah)
25% (twenty five percent)
Over Rp500,000,000 (five hundred million Rupiah)
30% (thirty percent)
Current Year Tax Payment
After calculating Taxable Income and Tax Payable, the next step is to deduct tax credit from Taxable Income. Tax credit is any tax that has been paid, whether through a withholding mechanism by another party, or by self-deposit. The result of this deduction is Accrued Income Tax Payable.
Illustration of Tax Payable Calculation
Based on the concept above, let’s now take a look at the following illustration:
Mr. Leopold, an office worker with a part-time business of repairing electronic devices, has a wife and a two-year-old child. His total net income this year is Rp300,000,000, of which Rp200,000,000 comes from his job at Hydra Corp. and the remaining Rp100,000,000 comes from his electronic device repair business. A Rp15,550,000 income tax has been withheld from his Hydra Corp. income, and for that, he has received a withholding tax receipt (form 1721). His wife, Mrs. Jemma, is a housewife earning no income.
Based on the data above, the calculation will be as follows:
Net Income Rp300,000,000
Non-Taxable Income (married, 1 child) (Rp63,000,000)
Taxable Income Rp237,000,000
Income Tax Payable
5% x Rp50,000,000 Rp2,500,000
15% x (Rp237,000,000-Rp50,000,000) Rp28,050,000
Total Tax Payable Rp30,550,000
Therefore, the accrued Tax Payable will be as follows:
Total Tax Payable Rp30,550,000
Tax Credit (withholding tax receipt from Hydra Corp.) (Rp15,550,000)
Accrued Tax Payable Rp15,000,000
The Accrued Tax Payable does not necessarily have a positive balance, as in Mr. Leopold’s case for example. The balance could be zero if tax payment or tax credit equals Tax Payable, or even negative if tax payment or tax credit exceeds Tax Payable. If the Accrued Tax Payable has a positive balance, the Taxpayer will have to settle the underpaid Tax Payable. On the other hand, in the case of overpayment or negative balance, the Taxpayer can choose to either have it set off against the next Tax Period or submit a written request for refund of the tax overpayment to the Tax Office (KPP) with which they are registered.
Bookkeeping and Recording
Bookkeeping is a process of orderly recording financial data and information that includes assets, liabilities, equities, incomes and expenses, and acquisition costs and sales of goods or services, which closes with the making of financial statements consisting of a balance sheet and a profit and loss statement at the end of each Tax Year.
The bookkeeping must be maintained in Indonesia using Latin alphabet, Arabic numerals, and Rupiah currency, and written in Indonesian or any foreign language approved by the Minister of Finance.
The bookkeeping must be maintained in a manner and by employing a system commonly used in Indonesia, for example by complying with the Financial Accounting Standards, unless the Tax Laws specify otherwise.
Recording, on the other hand, is a process of orderly collecting gross income data as a basis for calculating Tax Payable, including income that is not a Tax Object and/or subject to Final Income Tax.
Any Corporate Taxpayer and Individual Taxpayer conducting business or independent personal service are required to do bookkeeping. Exempt from this requirement is any Individual Taxpayer conducting business or independent personal service with turnover of less than Rp4,800,000,000 annually, or according to the applicable tax regulations allowed to do recording.
Any books, records, documents, and electronic data upon which the bookkeeping is based and any other documents must be retained for 10 (ten) years in Indonesia according to the statute of limitations of tax crime investigation.