DGT Imposes 6% Royalty Tax for Self-Employed Individuals

Starting 16 March 2023, Self-Employed Individual Taxpayers who use the Net Income Calculation Norm (NPPN) will only be subject to Income Tax Article 23 aka tax on royalty, amounting to 6% of gross revenue.

This tax rate is lower than the previous provision, which required self-employed individual taxpayers to pay a tax of 15% of gross revenue. This is stated in the Regulation of the Director General of Taxes Number PER-1/PJ/2023.

This decrease occurred due to a change in the formula for calculating Income Tax Article 23 payable. Previously, ITA 23 was calculated by multiplying the applicable rate of 15% by the amount of gross revenue equal to the value of royalties.

Meanwhile, in the new formula, Income Tax Article 23 payable is calculated by multiplying the applicable rate of 15% on the amount of gross revenue, which is determined to be only 40% of the amount of royalties received.

Previous Provision	New Provision
Income Tax Article 23 = 15% X Gross Amount Gross Amount = Royalty Amount	Income Tax Article 23= 15% X Gross Amount Gross Amount= 40% X Royalty Amount
Income Tax Article 23 = 15% X Royalty Amount	Income Tax  Article 23 = 6% X Royalty Amount

Thus, in terms of regulation, there is actually no change in the tariff amount, but only a change in the amount of the tax base. Although technically, the applicable rate seems to be lower.

Required to Meet Conditions

The royalty tax reduction applies to taxpayers who meet the requirements, namely:

First, individual taxpayers with income below IDR 4.8 billion use the NPPN, which is a guideline for determining the amount of net income stipulated in Article 14 of the Income Tax Law.

Second, the party that deducts royalty income tax has submitted a proof of receipt letter (BPS) notifying the use of NPPN, before the deduction is made.

Withholding Tax

The royalty tax withholding is carried out by the taxpayer who pays royalties accompanied by the preparation of a withholding slip. The withholding slip is then submitted to the individual taxpayer who receives royalty income.

After withholding, the royalty payer is also required to deposit the withheld tax to the tax office and report it in the Unification Periodic Income Tax Return.

Reporting Annual Tax Return

In addition to withholding taxes, income from royalties must also be reported in the Annual Tax Return (SPT).  The reporting is carried out on the portion of net income from independent work received by domestic taxpayers.

Then, when submitting the Annual Tax Return, the taxpayer can also credit the royalty tax that has been withheld. (ASP/KEN)