Tax Clinic
The Importance of Understanding Tax Credits, For The Accurate Tax Calculation

Friday, 28 October 2022

The Importance of Understanding Tax Credits, For The Accurate Tax Calculation

Every individual or institution with income in Indonesia must not forget to pay income tax.

In general, the value of income received minus non-taxable income (PTKP) must be considered when determining the amount of tax that must be paid in order to determine the value of taxable income (PKP).

The value of the taxable income is then multiplied by the applicable income tax rate. Except for income that is subject to the final income rate, the calculation is direct by multiplying the final income tax rate by the amount of gross income.

However, to determine the amount of income tax that must be paid, it is not enough to just calculate the amount of income tax payable. Because there is one more component that must be calculated, namely the tax credit.

The tax credit is essentially the amount of tax that the taxpayer had paid at the beginning of the tax period. The amount of tax that has been paid is the accumulation of taxes that have been collected or withheld by other parties, including income tax payable abroad. So that can reduce the amount of income tax that must be paid by taxpayers at the end of the year.

Read: Secondary Adjustment, New Uncertainty, and Potential for Double Taxation

Types of Tax Credited

Referring to Article 28 of Law (UU) Number 28 of 1983 on Income Tax which has been amended by Law number 36 of 2008 and Law Number 7 of 2021, there are several types of income tax that can be used as tax credits, among others, such as withholding and/or collecting Income Tax Article (ITA) 21, ITA 22, ITA 23, ITA 24, ITA 26 paragraph (5), and installments of ITA 25.

Withholding Income Tax Article 21

Income Tax Article (ITA) 21 is a type of tax withheld on income from work, services or activities in any name and form received by the taxpayer.

Meanwhile, the withholding of Article 21 income tax is carried out by the employer, government treasurer, pension fund or other entity that pays salaries, honoraria, wages, allowances, or other payments related to work performed by employees or non-employees.

Therefore, because it has been deducted by the employer, the taxpayer who receives the income does not need to pay off the taxes payable on these incomes.

Withholding ITA 22

ITA 22 is a type of tax levied by certain entities on the activities of importing goods, purchasing goods, and selling goods produced domestically.

Several agencies set by the government to collect ITA 22 include the foreign exchange bank and the Directorate General of Customs and Excise (DJBC) on imported goods, the Directorate General of Treasury, Government Treasurers at the Central and Regional levels, State-Owned Enterprises (BUMN) and Regional Owned Enterprises (BUMD) for the purchase of goods using the State Budget or Local Government Budget (APBD).

In addition, ITA 22 may also be collected by certain business entities on the purchase of goods and/or materials for the purposes of their business activities. The business entities are:

Other institutions are business entities engaged in the cement industry, paper industry, steel industry, and automotive industry, which sell their products domestically.

Then, it can also be conducted by producers or importers of fuel oil, gas, and lubricants. As well as industries and exporters in the forestry, plantation, agriculture, and fishery sectors who buy materials for industrial or export purposes from collecting traders.

  • Withholding ITA 23

ITA 23 is a type of tax that is withheld finally or based on the amount of gross income obtained from dividends, interest, royalties, prizes, bonus awards and the like, rent and compensation related to the provision of technical services, management, construction, consultants and other services which are further regulated in PMK Number 141/PMK.03/2015.

ITA 24 paid or payable

ITA 24 is a tax that has been withheld/paid abroad on income made overseas received by a taxpayer in Indonesia which can be credited for the amount of income tax paid or payable, a maximum of the value of the income tax payable in Indonesia.

Some income made overseas that may be credited include, first, income from shares or profits from the transfer of shares and other securities.

Second, income in the form of interest, royalties and rent for the use of the movable and immovable property. Third, income in the form of compensation for services, work and activities in other countries.

Fourth, income from permanent establishments (BUT) in other countries. Fifth, income from the transfer of part or all of mining rights or participation in financing or capitalization in mining companies.

Sixth, gains on the transfer of fixed assets abroad. Seventh, the transfer of fixed assets that are part of the permanent establishment abroad.

  • Payment of ITA 25

ITA 25 is a tax installment for the current year that is paid by the taxpayer every month in the amount of income tax payable according to the Annual Tax Return (SPT) for the last taxable year reduced by ITA 21 and ITA 23 as well as ITA 22 that has been collected, and also ITA 24, then divided by 12 months or the number of months in the tax year portion.

Withholding ITA 26 paragraph (5)

Withholding ITA 26 on income received by foreign taxpayers is final. However, on the income, as referred to in Article 5 paragraph (1) letter b and letter c of the Income Tax Law and on the income of an individual taxpayer or foreign company that changes its status to a domestic taxpayer or permanent establishment, withholding Income Tax Article 26 is not final, so the tax deduction can be credited in the Annual Income Tax Return.

  • The Difference and Underpayment

If the result of the calculation between the value of the tax payable and the tax credit is greater than the amount of tax payable, then the difference is the amount of tax that still needs to be paid by the taxpayer.

The difference must be paid no later than the due date for the filing of the annual income tax return. For individual taxpayers on March 30 of the following tax year, while for corporate taxpayers on April 31 of the following tax year for those whose fiscal year is the same as the calendar year.

On the other hand, if the value of the tax payable is less than the value of the tax credit, the DGT must return the difference to the taxpayer. However, the return is only made after going through the audit process and taking into account all tax debts and sanctions.


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