Tax Provision for Providing Assistance, Donations or Grants To Be Rearranged

The government reorganizes the taxation provisions on granting assistance in the form of donations or grants by issuing the regulation of the Minister of Finance (PMK) number 90/PMK. 03/2020, concerning aid or donations, as well as grants that are excluded as income tax objects. Provisions regarding the same matter have previously been stipulated in PMK number 245 / PMK.03 / 2008.

This rearrangement is carried out so that the taxation provisions in giving grants, assistance or donations are more comprehensive, not only for the recipient, but also for the giver. This is different from the previous provision, which only regulates from the recipient side only.  

Thus, the government hopes that this rearrangement can provide legal certainty regarding tax treatment, in the provision of assistance or donations and grants.

Read: Scholarship Can Be a Tax Reduction 

As for the tax provisions on grants, assistance and donations for the giver that is now the gift is exempted from the tax object. What is meant by profit in the context of providing assistance or donations and grants is the difference between the market price and the fiscal book residual value or acquisition cost of the goods provided.

However, this provision only applies if assistance or grants and donations are given to certain parties, namely;

1. Blood relatives in the same line as parents or children.
2. Non-profit religious organizations whose main activities are to manage places of worship and / or organize religious activities.
3. Nonprofit educational institutions whose main activity is conducting education.
4. Social institutions include nonprofit foundations whose main activities are maintaining health, the elderly, orphans, giving compensation to victims of natural disasters, accidents and the like, giving scholarships, and preserving the environment.
5. Cooperatives 
6. MSMEs who have a maximum net worth of IDR 500 million do not include land and buildings or have a maximum turnover of IDR 2.5 billion a year.

These provisions shall apply, if the receiving party does not have any business relation, occupation, ownership or control relationship between the parties concerned.(see table).

No	Types of Relation Excluded	Description
1	Business Relation	There are regular transactions between the giver and the recipient
2	Employment Relation	Providing services, or carrying out activities directly or indirectly between the giver and the recipient
3	Ownership Relation	There are direct or indirect equity investments between the giver and the recipient
4	Control Relation	There is a control either directly or indirectly between the giver and the receiver

Reducing Gross Income

In the latest regulation, the government also stipulates that grants, assistance or donations can also be deducted from the gross income of the giver when calculating Taxable Income (PKP). Previously, in the former rule, it was not disclosed.  So, with this regulation, the provision of grants, assistance and donations can be used as tax incentive.

In addition, this regulation also regulates the taxation provisions for grants, assistance or donations from the recipient's side. As stipulated in the previous provision, for the recipient of the gift is also excluded from the income tax object. As long as the recipient is certain parties as explained above.