Can Insurance Premiums and Pension Contributions Reduce Taxes?

Dear, Tanya-Tanya Pajak,

I would like to know if the purchase of life insurance and pension contributions for employees (directors or staff) can be a deductible expense. Because I have got the information that the Financial Institution of Pension Fund (DPLK) program can be deducted. Thank you.

(Meishara Christina, Jakarta)

Answer:

Thank you for the question. My name is Dwi Novianti Suharsih from MUC Consulting and I will answer the question. The provision of insurance facilities is one of the guarantees and protections provided by the company to employees.

Employees who have insurance policies will be eligible for benefits if they get sick, suffer an accident, or pass away. As for the company, providing insurance to employees is an investment in the form of risk transfer to an insurance company that can ease the financial burden in the future.

Companies that provide insurance facilities for employees will pay premiums to the insurance company. The premium payment will be recorded as an expense in the company's financial statement.

The Income Tax Law (PPh), which was last amended by the Harmonized Tax Law (UU HPP), confirms that there are five types of insurance whose premiums can be taken into account in determining an employee's taxable income in calculating corporate income tax.

The five types of insurance are health insurance, accident insurance, life insurance, endowment insurance, and scholarship insurance. As an employer, companies can also include their employees in the Financial Institution of Pension Fund (DPLK) program, both formed by banks and life insurance companies.

For employees, the DPLK program can be an old-age investment instrument. As for companies, participating in the DPLK program can reduce the administrative burden of managing their employees' pension fund investments.

For DPLK participation, there is a contribution that must be paid by the company and/or employees before maturity. Contributions borne by the company will be recorded as an expense in the financial statement.

Under the HPP Law, pension contributions paid to pension funds—whose establishment has been approved by the Minister of Finance—are an expense that can be calculated to determine the amount of taxable income in the calculation of corporate income tax.

Therefore, the payment of life insurance premiums and the DPLK program can be deducted in the calculation of corporate income taxable income by taking into account the provisions governing it. This is our explanation. Hopefully, it is useful.

Best Regards,
Dwi Novianti Suharsih

Note:

Tanya-tanya Pajak is a collaboration between Kompas.com and MUC Consulting which addresses issues regarding tax policies and practices.