Regulation Update
Tax-Free Revenue Pegged at IDR 500 million in the HPP Law

Friday, 08 October 2021

Tax-Free Revenue Pegged at IDR 500 million in the HPP Law

The Harmonized Tax (HPP) Law pegs the non-taxable revenue limit at IDR 500 million and widens the range of personal taxable income at the lowest rate (5%) to IDR 60 million, from IDR 50 million previously.

Minister of Finance Sri Mulyani Indrawati explained that the limit for the revenue of individual entrepreneurs who are not subject to tax is set at IDR 500 million.

Thus, individual entrepreneurs who calculate income tax with a final rate of 0.5% and have a revenue of up to IDR500 million a year are not subject to income tax," said the Minister of Finance in an online press conference on Thursday (7/10/2021).

According to her calculations, this policy eases the tax burden of small-scale entrepreneurs. This is because the non-taxable revenue limit has made the tax paid by business actors to be lower than before.

As an illustration, a grocery store entrepreneur with an average operating income of IDR 100 million per month will only be subject to 0.5% final income tax in the sixth month.

This means that the total income subject to 0.5% income tax is IDR 700 million from the total annual revenue of IDR 1.2 billion. In other words, grocery store entrepreneurs only pay taxes of IDR 3.5 million a year or lower than before where they had to pay IDR 6 million a year.

New Tariff Layer

Sri Mulyani added that the HPP Law also widened the range of individual income affected by income tax with the lowest rate (5%) to up to IDR60 million, from IDR50 million previously.

In addition, the top layer of taxable income has also been raised, from previously more than IDR 500 million to more than IDR 5 billion. The increase was followed by the addition of a new tariff, which is 35% for individuals with incomes of more than Rp5 billion. (See table).

Income Tax Law (Old) Harmonized Tax Law (New)
 Taxable Income  Tariff Taxable Income  Tariff
Up to IDR50 million  5% Up to IDR60 million 5%
>IDR50 million - IDR250 million 15% > IDR60 million - IDR250 million 15%
> IDR250 million - IDR500 million 25% > IDR250 million - IDR500 million 25%
> IDR500 million 30% > IDR500 million - IDR5 bilion 30%
  - > Rp5 million 35%

She ensures that this change in tariff layers will not increase the income tax burden for individuals making up to IDR 5 billion a year.
"People earning up to Rp4.5 million per month still do not pay income tax at all," she guaranteed.

In fact, she continued, the majority of people who earn more than IDR 4.5 million per month will pay lower taxes (than before)," she said.

Draft Final Rancangan Undang-Undang Harmonisasi Peraturan Perpajakan

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