Tax system
Indonesia’s taxation system is based on broad-based
value-added tax on revenues combined with a self-assessment system. Taxes are
imposed at regional and national levels. The Indonesian tax system classifies
taxes into:
- national taxes: including income
tax, value-added tax, sales tax on luxury goods, stamp tax, property tax (on
land and buildings), and fiscal departure tax
- regional
taxes: including development tax, motor vehicles tax, other minor taxes
(household, entertainment, road,
advertisement, radio and television taxes)
- customs and excise taxes:
including export duty, import duty, tobacco, sugar, beer and alcohol, and
gasoline taxes.
The Ministry of Finance and the Director General of Taxation
regulate compliance with the main taxation rules. Unfortunately, the Tax Court,
which is the court of appeal on tax matters, does not make its decisions
readily available. The Tax Court is a judicial institution with jurisdictional
authority for taxpayers or tax guarantors seeking settlement of tax disputes. A
request for re-examination of a decision of the Tax Court by the Supreme Court
will only be granted where certain conditions are fulfilled.
A Large Taxpayer Tax Service Office was established in
Jakarta in July 2002 and responsibility for “large” taxpayers were transferred
to this office. It is common practice for the financial year of companies to
follow the calendar year.
In September 2008 the Parliament passed a new income tax law
which reduced the number of income tax brackets (from five to four) and lowered
the maximum rate of income tax from 35 per cent to 30 per cent (for salaries of
Rp500 million or greater). In addition, the then current corporate tax rates of
10 per cent, 15 per cent, and 30 per cent disappeared in 2009 in favor of a
single corporate tax rate of 28 per cent. In 2010, this corporate tax rate fell
to a flat 25 per cent.
Income taxes
The wide definition of income tax in Indonesia’s taxation
law applies equally to both individuals and businesses operating through
corporate structures. This definition of income tax includes such income
sources as:
- wages
and salaries
- interest
and dividends
- compensation
for work performed
- compensation
for use of assets
- commissions
and bonuses
- rent
- pensions
and royalties
- lottery
prizes and awards
- bonuses
and awards
- foreign
exchange gains
- insurance
and reinsurance premiums
- capital
gains on property.
Taxpayers are
classified as:
- resident taxpayers: this includes
companies, partnerships and cooperatives domiciled or incorporated in
Indonesia. If a foreign business has a “permanent establishment” (that is, an
“establishment regularly used to carry on business in Indonesia by an organization
or enterprise not set up or domiciled in Indonesia”), it is considered a
resident for tax purposes. Any individual present in Indonesia for more than
183 days in any 12-month period or a person who intends to reside in Indonesia
is also classified as a tax resident of Indonesia
- non-resident taxpayers: a
non-resident taxpayer is one who receives benefit from activities in Indonesia.
Double tax treaties that Indonesia has signed with various countries can
provide some relief.
Withholding taxes
Withholding taxes apply to:
- payments
made for a range of services performed within Indonesia
- payment
of fees to partnerships or individuals
- payment
to offshore funds (these include interest, royalties, technical service fees,
dividends)
- certain classes of income,
including transfer of title to land/buildings, rent paid on land/ buildings and
income from construction and construction consulting services.
Other taxes
Other taxes of relevance to foreign investors include:
- land and building tax which is an
annual tax on land, building and permanent structures. Taxpayers are those with
the rights over the land or those who possess or control structures to obtain
benefit from them
- value-added
tax applies to the supply of most goods and services in Indonesia
- stamp
duty on execution of certain documents (this is nominal and not an ad valorem
tax)
- foreigners’
tax, which is payable by companies for expatriate employees
- fiscal tax on departure from the
country (currently Rp1 million on each departure of Indonesians and foreign
residents). From 2009, any person with an Indonesian tax file number (Nomor
Pokok Wajib Pajak (NPWP)) is exempted from fiscal exit tax.