Regulation Update
The Harmonized Tax Law Changes Provisions in Income Tax Law, Here are The Details

Thursday, 07 October 2021

The Harmonized Tax Law Changes Provisions in Income Tax Law, Here are The Details

JAKARTA. The House of Representatives (DPR) through a plenary meeting held Thursday (7/9) approved the ratification of the Taxation Harmonization Bill (RUU HPP) into Law.

With this regulation, a number of provisions regulated in other Taxation Laws undergo changes. One of them is the Income Tax (PPh) Law.

Based on the draft of Taxation Harmonization Bill l, which was discussed by the government and Commission XI, there are at least nine articles in the Income Tax Law that will be amended. Such as Article 4, Article 6, Article 7, Article 9, Article 11, Article 11A, Article 17, Article 18 and Article 32A. And there is one additional article, namely Article 32C.

Provision of Benefit-In-Kind Can be Recognized as Cost

With the amendments of Article 4, Article 6 and Article 9, the provision of Benefit-In-Kind (BIK) by the company to its employees can be recognized as a cost.
So it can reduce the company's gross income.

On the other hand, the BIK provision can also be recognized as income for the employee who receives it.

However, only BIK that meets the criteria that can be recognized as a cost and as employee income, for instance:

  1. Provision of food/drink for all employees
  2. BIK provided in certain areas
  3. BIK that must be provided by the employer in carrying out the work
  4. BIK funded by State Budget (APBN) or Regional Budget (APBD)
  5. BIK with certain types and limitations

Final income tax calculation of 0.5% for individual taxpayers changed

New individual taxpayers are obliged to pay a final income tax of 0.5% if the revenue of their business in one year has reached IDR 500 million.

Thus, the final income tax payment of 0.5% does not need to be made from the beginning of the year if the cumulative revenue has not reached IDR 500 million. This is stipulated in Article 7 paragraph (2a) of the HPP Law.

While in the preceding provision, they had to pay a final income tax of 0.5% from the beginning of the year, so there was no need to wait until the turnover they received reached IDR 500 million. As long as they are registered as certain taxpayers who are subject to the final income tax rate.

Individual Income Tax Layer Added

The scheme for determining layers of individual income tax rates as regulated in Article 17 also changed. The change includes adding a special layer for income above IDR 5 billion, which is subject to a 35% income tax rate.

In addition, changes also occur in the amount of income in the lowest layer. Previously, the layer with a 5% income tax rate was only for a maximum income of IDR 50 million. But now it has changed to a maximum income of IDR 60 million.

A 20% Cut for Corporate Income Tax Rate is Cancelled

To optimize tax revenue, the government has decided not to lower the income tax rate for corporate taxpayers in 2022 to 20%.

Because, in the Harmonized Tax Law, the corporate income tax rate that will apply in 2022 is 22%, as applied this year. Meanwhile, the plan to reduce the corporate income tax rate to 20% was previously regulated in Law Number 2 of 2020.

Tax Collection Cooperation with Partner Countries

The Harmonized Tax Law also emphasizes that the government can cooperate with partner countries in the context of tax collection. This is regulated in the amendment to Article 32C of the Income Tax Law.

Several other cooperation agreements that can be made are related to the avoidance of double taxation and prevention of tax evasion, preventing the erosion of the tax base and shifting profits, as well as exchanging tax information.

This is in contrast to the previously regulated provisions, as it only regulates the authority of the government in making cooperation with partner jurisdictions, in general

Provisions for Amortization and Depreciation Reinforced

The existence of the Harmonized Tax Law will affirm provisions related to the depreciation of tangible assets and the amortization of intangible assets with a useful value of more than 20 years.

The affirmation is done because so far, the depreciation and amortization mechanism contained in Article 11 and Article 11A of the Income Tax Law, only regulates the group of assets with a benefit period of 4 years, 8 years, 16 years, and 20 years. Meanwhile, assets with a benefit value of more than 20 years are not strictly regulated.

Therefore, in Article 11 and Article 11A of the Harmonized Tax Law, it is affirmed the mechanism of depreciation and amortization of property over 20 years, equal to the property with a benefit value of 20 years or based on the actual benefit period in the bookkeeping.

In its consideration, the preparation of the Harmonized Tax Law was carried out to increase economic growth and accelerate economic recovery after the Covid-19 pandemic.

To be able to realize that, the government feels the need to conduct fiscal consolidation that focuses on improving the budget deficit.

Meanwhile, the budget deficit can be managed better as long as tax revenues can increase.


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