Tax Clinic

Types, Benefits, and Nature of Taxes

The classic issue with Indonesia's tax system is its poor compliance rate, which is mostly caused by the lack of awareness among people regarding the significance of taxes as the main source of government income. In fact, taxes often appear in almost every transaction. For this reason, it is important to understand the types, benefits, and nature of taxes that apply in Indonesia.

What is Tax?

Taxes are coercive contributions levied by a government entity. The target is all individuals and companies that are included. The collected taxes will go into the state treasury to fund various kinds of public expenditures, the ultimate goal of which is the prosperity or welfare of the people.

In various works of literature, tax is defined as the compulsory contribution of individuals and companies to the country according to the provisions and laws in force in each country.

What are the Tax Benefits?

Tax revenue is the primary source of funding for development in almost all nations. Therefore, the range of facilities and the standard of public services will be impacted by tax contributions.

Taxpayers frequently cannot immediately experience the advantages of paying taxes. In reality, many of the public facilities that are used today are a direct result of handling tax payments. Consider the facilities such as hospitals, schools, and public transport, as well as the streets that we pass every day.

Read: There are many tax principles in the world, which one will Indonesia adopt?

Types of Tax

After understanding what a tax is and its benefits as well as characteristics, the next thing to know is the types of taxes that are imposed according to the characteristics of the object and subject of the tax. 

Based on the collection agency, there are three types of taxes in Indonesia:

• Central Government Tax

The taxes are collected by the central government through the Directorate General of Taxes (DGT). The following are the types of central taxes:

1. Income Tax 
2. Value Added Tax (VAT)
3. Sales Tax on Luxury Goods (STLG)
4. Stamp Duty  
5. Land and Building Tax 

Particularly for Income Tax and VAT, they are further divided into several types based on the characteristics of the tax object, which will be covered in more detail in the next articles.

• Regional Tax

Regional taxes are taxes and retribution whose tariff determination and collection are under the authority of the Regional Government at the Provincial and Regency/City levels. The following are the types of Regional Taxes and Retribution (PDRD):

1. Motor vehicle tax.
2. Motor vehicle ownership transfer fee.
3. Motor vehicle fuel tax.
4. Surface water tax.
5. Cigarette tax.
6.  Hotel Tax
7.  Restaurant tax
8.  Entertainment Tax
9.  Advertisement Tax
10. Street Lighting Tax
11. Non-Metal and Rock Mineral Tax
12. Parking Tax
13. Groundwater tax.
14. Swallow-nest tax
15. Rural and Urban Land and Building Tax
16. Duty on the acquisition of land and buildings rights

• Customs and Excise 

Duty is a levy imposed on goods that enter (import) and exit (export) from the customs area. Therefore, the terms import duty and export duty are known.

Meanwhile, the excise tax is imposed on the consumption of certain goods that have special characteristics or are restricted in their use. In Indonesia, excise taxes are imposed on ethyl alcohol, beverages containing ethyl alcohol, and tobacco products such as cigarettes and cigars.

Read: Have a Significant Role, Let's Discover Some Tax Functions in Indonesia

Nature of Tax

Based on the description above, taxes can be regrouped based on the nature of collection as follows:

1. Direct Taxes, namely taxes that are imposed on taxpayers periodically, both individuals and companies.
2. Indirect Taxes, namely taxes that are imposed on taxpayers when carrying out certain events or actions that are tax objects.

To learn more about taxation in detail, stay tuned to Tax Clinic MUC Consulting.