Tax Clinic
Learning About the Types of Taxation Systems in Indonesia

Thursday, 25 August 2022

Learning About the Types of Taxation Systems in Indonesia

Tax is a source of state revenue that plays an important role in the development and economy of the country. Every citizen who meets the requirements as a Taxpayer (WP) is subject to the obligation to pay taxes. Well, in the collection process, there are several systems used.

Quoted from, the tax collection system or taxation system is a mechanism that regulates how the tax rights and obligations of a taxpayer are implemented. Simply put, the tax collection system is a method used to calculate the amount of tax that must be paid by taxpayers.

The implementation of this tax collection system varies in each country. In Indonesia, there are three tax collection systems that apply.

Meanwhile, this tax collection system is regulated in Law Number 10 of 1994 which discusses and regulates all matters relating to tax subjects and objects. The following are explanations of the three types of tax collection systems in Indonesia:

Official Assessment System

This tax collection system authorizes the government to determine the amount of tax payable by the taxpayer according to the applicable tax laws. In this system, taxpayers are passive because the amount of tax to be paid must go through a tax assessment letter by the authorities.

Since the change in the provisions of the tax laws and regulations in 1983 (Indonesian taxation reform) replaced the tax regulations made by the Dutch colonial (PPs 1925 ordinance and PPd ordinance 1944), Indonesia has changed its tax collection system from the Official Assessment system to the Self Assessment system. However, this collection system still applies to certain types of taxes. Such as the payment of Land and Building Tax (PBB) and other types of local taxes.

The characteristics of the Official Assessment System include:

  1. The authority to determine the amount of tax payable rests with the tax authorities
  2. Taxpayers are passive
  3. Tax payables arise after the tax assessment letter is issued by the tax authorities.

Self Assessment System

In contrast to the official assessment system, this tax collection system actually gives taxpayers the authority to determine the amount of tax payable themselves. Taxpayers calculate, pay, and self-report the amount of tax that must be paid. Even so, the government still has a role. In this system, the government acts as a supervisor of the taxpayer's taxation activities. This tax collection system usually applies to types of central government taxes including Value Added Tax (VAT) and Income Tax.

The characteristics of the Self Assessment System include:

  1. Taxpayers play an active role in their taxation activities.
  2. Taxpayers determine the amount of tax to be paid.
  3. The government does not have to issue a tax assessment letter.

Withholding System

This tax collection system authorizes third parties to determine the amount of tax payable by the taxpayer. The third party is neither the tax authority nor the taxpayer concerned. One of the third parties is the company where the taxpayer works. For example, deductions from employee salaries by the company, so that the employee no longer needs to pay the tax to the tax office. For proof of payment of taxes, usually, a Tax Payment Letter (SSP) is issued. Several types of taxes in this system include Income Tax Article (ITA)21, ITA 22, ITA 23, and Final Income Tax Article 4 paragraph (2).

The characteristics of the Withholding System include:

  1. There are third parties who play an active role in carrying out tax activities.
  2. Taxpayers and the government play a passive role in the implementation of this tax system.
  3. There is proof of deduction or a Tax Payment Letter that needs to be attached.

That is an explanation regarding the types of tax collection systems that apply in Indonesia. By understanding more deeply the tax collection system, it is expected that it will be able to raise awareness of taxpayers to fulfill their tax obligations correctly according to the applicable laws and regulations. (Ken)


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