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Learning Objectives
• Describe definition of tax, its type and other contribution
• Identify tax law and its position
• Understand the interpretation on tax law
• Differentiate kind of taxes and identify criteria for a tax structure
• Recognize when tax is due and its ending
• Discuss the tax avoidance and evasion
Introduction to Taxation
Definition of Tax:
• A mandatory assessment levied by a government to their taxpayers
• based on the law
• without indicating to any direct compensation
• to finance governmental activities and also to regulate economic sector.
Retribution:
• Local Government Tax
• Based on Law
• Any direct compensation
Learning Objectives
• Describe definition, function and procedures to obtain Tax ID
• Understand extension to pay tax
• Identify annual tax return and related penalty
• Describe definition on assessment letters
• Explain the bookkeeping obligation
• Understand tax audits and investigation
• Explain procedures to file objection and appeal
• Explain tax collection procedures
Taxable Year
• Taxable year - difference with a calendar year should have an approval from
DGT
• Decided taxable year - the book year: 01/07/08 -30/06/09 -> taxable year 2008
since first 6 month within 2008
• Decided taxable year - the book year: 01/04/08 – 31/03/09 -> taxable year
2008 since most month within 2008
• Decided taxable year - the book year: 01/10/08 – 30/09/09 -> taxable year
2009 since most month within 2009
Tax ID Deregistration
• Tax ID can be revoked with the following reasons:
– The death for individual
– Leaving Indonesia for individual
– Officially dissolution of company
Dateline of Payment
• Income tax 21, 22 on certain body, 23/26 should be paid on 10 of the
following month
• Income tax 25 & VAT should be paid on 15 of the following month
• Income tax 22 on import & VAT and Sales Tax on luxury goods should be
paid on the time of duty being paid or on import settlement when duty is
deferred
• Income tax 22 Custom and Excise & VAT and sales tax on luxury goods
should be paid one day after tax being withheld
Dateline of Payment
• Income tax 22 of State Treasury should be paid on the same day of
commercial payment
• Income tax 22 of Pertamina should be paid before Delivery Order being issued
• VAT and Sales tax of the State Treasury should be paid on 7 of the following
month
Tax Returns
• Tax Returns – A report to declare a tax calculation or payment, tax object or
not, assets and liability according to the tax law
• Function- to report tax due, withholding tax, prepaid tax for a certain tax
period
• Taxpayers should take the form by their self and file it to the tax office
including send by mailing
• Over 2 years of the end of tax period and provided that the tax audit has not
yet done tax returns still can be revised when having an assessment from a tax
objection or tax appeal which is certifying a different tax loss carry forward.
The revision should be made within three months of the date of assessment
Assessment Letter
• Assessment letter – mentioning a tax covering tax under and over payment,
additional on tax underpayment etc
• Tax underpayment – mentioning principal tax, tax credit, shortage of payment
on principal, administrative sanction and the remainder that should be paid
• Tax overpayment – stipulating an excess of credit tax over the tax payable
• Zero Tax Assessment - stipulating that the tax credit are equal to the tax
payable
Bookkeeping
• Definition- a recording process in good manner to gather financial information
covering assets, liabilities, capital, income and cost including acquisition cost,
delivery goods and services which is closed by compiling financial statements
in the form of BS and P/L at the end of tax year
• Taxpayer both individual and firm qualify to conduct a bookkeeping with the
sales or turnover amount exceeding the certain amount
Some consideration:
• Good faith and reflecting real condition or business activities
• Performed in Indonesia, in Latin letters, Arabic numbers, IDR denomination,
Indonesian language or other foreign under MOF approval
• Consistency and accrual or cash basis
• Any change in method and or tax year should have a DGT approval
• Consisting of assets, liabilities, income and cost as well as sales and purchase
so that the amount of tax payable can be calculated
Tax Audits
• Definition- A series of activities to seek, gather, process data and other
information to test compliance on the tax obligation or other purposes in line
with the implementation of tax law provisions
• The example of other purposes are:
– Deregistration of Tax ID
– Tax Refund and objection
Objection
• When any different opinion on an assessment, the taxpayers may file an
objection
• The objection submitted by written within 3 month after the date of
assessment
• An objection represent one assessment which mentioning objection amount
also clear reason underlying the objection
• Taxpayers should pay the existing tax payable prior to the objection
submission with minimum amount that agreed on the closing tax audits
• The result should be finalized within 12 months after the date of objection
letter receipt
• The result may be accepted in full or half amount or rejected it or even create
any addition tax liabilities
Appeal
• When taxpayer still not satisfied with the result of objection then the taxpayers
may file an appeal
• The appeal submitted by written within 3 month after the date of objection
decision and attached with the copy of decision letter
• When the decision of appeal showing rejected or accepted in half amount so
the underpayment is subject to 100% but when accepted a full amount so the
overpayment will be added by interest 2% per month
Investigation
• Definition - a series of activities conducted by Tax Investigator to find and
collect evidence in order to uncover a criminal offence in the field of taxation
and to find the suspect
• The investigation is conducted according to the criminal law (KUHAP) by an
investigator working on DGT which has the authorization to do investigation
Tax Sanction
• Tax sanction:
– Tax Administration
– Tax Criminal
• Tax Administration:
– Penalty- certain amount and percentage
– Interest 2% per month maximum 24 months
– Additional – percentage
• Tax Criminal
– Imprisonment for certain period
Chapter 3:
Introduction to Income Tax
Learning Objectives
• Describe definition of tax subject
• Differentiate tax object and not tax object
• Identify tax object on Permanent Establishment
• Differentiate deductible and non deductible expenses
• Understand tax depreciation and amortization
• Recognize acquisition cost, inventory etc
Tax Subject
• Definition – any party according to the law that can be taxed
• Tax subject consist of:
– Individual
– Inheritance not yet divided as a unit, in lieu of rightful heirs
– Statutory body
– Permanent establishment
• Tax Subject can be divided:
– domestic tax subject
– non-domestic tax subject
• Tax subject versus non tax subject
• Tax subjective obligation
Deductible Expenses
• Expenses to earn, to collect and to secure income, including cost of materials,
costs in connection with employment or services including wages, salaries,
honoraria, bonuses, gratuities and remuneration in the form of money, interest,
rents, royalties, travel expenses, waste processing expenses, insurance
premiums, administrative expenses and taxes other than income tax;
• Depreciation of tangible asset and amortization of rights and other
expenditures which have useful life of more than 1 (one) year referred to in
Article 11 and Article 11A;
• Contributions to a pension fund approved by the Minister of Finance;
• Losses incurred from the sale or transfer of properties owned and used in
business or used for the purpose of earning, collecting and securing income;
• losses from foreign exchange;
• costs related to research and development carried out in Indonesia;
• scholarships, apprenticeships and training expenses;
• debts which are actually uncollectible, provided that:
• it has been charged to commercial financial statement;
• the case has been filed to court or BUPLN or there is a written
agreement on the discharge of indebtedness between debtor and
creditor;
• it has been published in media; and
• The Taxpayer shall submit the list of bad debt to the Directorate
General of Taxes, the procedure of which shall be stipulated further by
the Director General of Taxes Decree.
• The balance of tax loss from 2001 amounting to IDR 100,000,000 in the year
2006 may not be offset against tax profit in year 2007 since the 5 year period
has already expired; however, the tax loss 2006 amounting to IDR
300,000,000.00 may be offset against tax profit in 2007 and 2008, because the
5 year period for this loss commences in 2004 and finishes at the end of year
2008.
Depreciation
• Definition – Charging allocation in order to earn, collect and secure income
on expenditures to acquire tangible property which have a useful life of more
than 1 (one) year.
• Land and right can not be depreciated except if the land is used by the
company or owned to earn income provided that the value of the land
decreases through the business activities, for instance, the land is used by a
roof tile manufacturer, ceramics manufacturer or a brick manufacturer
Assets in progress in the month when the by the end of the useful
process is completed life
Non Building
Group 2 years 50% 100%
Group 1 4 years 25% 50%
Group 2 6 years 16,7% 33,3%
Group 3 8 years 12,5% 25%
Group 4
Building
Permanent 10 years 10%
Non Permanent 5 years 20%
Amortization
• Definition – Charging allocation in order to earn, collect and secure income on
expenditures to acquire intangible property and other expenditure including
cost of extending right to build, right to cultivates, and right to use that has a
useful life of more than one year which have a useful life of more than 1 (one)
year.
• Definition – tax on income like salaries and other remuneration etc derived by
individual taxpayer in respect of employment, services and other activities
• The term “other remuneration” means remuneration in whatever form other
than salaries, wages, allowances, and honorariums or other remuneration such as
bonus, profits share etc
Tax Subject
• Employee: permanent and non permanent
• Artists, sportsman, lecturer, service, project management, the race participants,
officials outside the insurance office, a distributor MLM / direct selling, and
similar activities;
• Pension recipient, former employees, including private persons or heirs who
receive the old savings fund and old guaranteed fund
• Expert: lawyer, accountant, architect, doctor, consultant, notary, assessors, and
actuaries
Tax Object
• All Income is received or obtained by employees or pension recipients in any form
of benefit in cash both regular or irregular
• Income is received or obtained by the recipient or employee, former employee or
pensions like leave allowance, bonus, etc or other similar income that are not
fixed.
• All wages received or obtained by non permanent employee including training
and internship
• Old savings fund and old guaranteed fund and other similar payment in
connection with the working termination
• Honorarium, gift or award with the name and in any form, commissions,
scholarships, and other payments as a reward in connection with the work,
services, and activities undertaken by the resident taxpayer:
– Expert: Lawyer, accountant, architect, doctor, Consultant, notary,
assessors, and actuaries
– Musician, host, singer, comedian, stars, director, crew and other artists;
– Sportswear;
– Advisor, teacher, instructor, moderator etc and author, researcher and
translator;
– Service in all areas including engineering and computer application
systems, telecommunications, electronics, photography, social and
economic;
– Ad agency;
– Project managers, service to a committee, and the hearing or meeting;
– Race participant
– Foreign insurance agencies;
– Participants in the education, training, and not internship not as
employees or prospective employees;
– Distributor company multilevel marketing or direct selling and other
similar activities.
• Salaries and other remuneration that received by the State Officers and
pension and other benefits-benefits that are associated with the pension received
by pensioners, including widows or widower and / or their children.
Other Rules
• Tax withholder required to provide monthly WTH slip at the time of taxes
being withheld as for annual WTH slim within two month after end of tax year
• When employees resign or retire on calendar year, the WTH slip is given by
the employer within one month after the employee resigned or retired
• Income recipients must submit a statement letter to the Tax withholder which
states the number of dependent family at the beginning of calendar year or at the
beginning to become residence taxpayer.
• Non taxable income is a certain amount that should be deducted from the
WTH Tax 21 computation
• Occupation support is cost to earn, to collect and to secure income for the
individual that can be deducted from income of permanent employee income who
work disregard holding any function position or not with maximum 5% or IDR
500.000 per month or IDR 6.000.000.
• Pension fund limit with maximum 5% or IDR 200.000 per month or IDR
2.400.000 per year.
5% 0 to 50 million
S/0 15.840.000
M/0 17.160.000
M/1 18.480.000
M/2 19.800.000
M/3 21.120.000
Weekly Salaries
Andy, married with one children, works at PT Jakarta Transport (JT) receives weekly
salaries of IDR 600.000:
Salary a month: 4 x IDR 600.000 IDR 2.400.000
Deduction
Employment expense 5% x IDR 2.400.000 = IDR 120.000
Net Income a month IDR 2.280.000
Net Income a year 12 x IDR 2.280.000 IDR 27.360.000
When subjective tax obligation has been begun in the beginning of year but
starting to work after the beginning of year
Jimmy has been working at PT Indonesia International as a permanent employee
since September 2009. Jimmy married with no children. His salary is IDR 6.000,000
and the pension contribution paid every month is IDR 150.000. The calculation of the
WTH 21 are as follows:
Monthly salary IDR 6.000.000
Deduction
Employment exp 5% x IDR 6.000.000 = IDR 300.000
Pension contribution = IDR 150.000 IDR 450.000
Monthly net income IDR 5.550.000
Annual net income 4 x IDR 5.550.000 IDR 22.200.000
Non taxable income – annual
Taxpayer IDR 15.840.000
Add married IDR 1.320.000 IDR 17.160.000
Taxable income per annual IDR 5.040.000
WTH Tax 21 Liability 5% x IDR 5.040.000 = IDR 252.000
Monthly WTH Tax 21 IDR 252.000 : 4 = IDR 63.000
Foreign Taxpayer
Steven is an expatriate married with no children join with PT Indonesian Mining
Corporation with the schedule from September 2009 to August 2010. During 2009,
his salary is IDR 60.000.000
Salary for 4 months 4 x IDR 60.000.000 IDR 240.000.000
Deduction
Employment exp 5% x IDR 240.000.000 = IDR 12.000.000
Max allowed 4 x IDR 500.000 = IDR 2.000.000
Net income 4 months IDR 238.000.000
Annual net income 12/4 x IDR 238.000.000 IDR 714.000.000
Non taxable income – annual
Taxpayer IDR 15.840.000
Add married IDR 1.320.000 IDR 17.160.000
Taxable income per annual IDR 696.840.000
WTH Tax 21 Liability
5% x IDR 50.000.000 = IDR 2.500.000
15% x IDR 200.000.000 = IDR 30.000.000
25% x IDR 250.000.000 = IDR 62.500.000
30% x IDR 196.840.000 = IDR 59.052.000 IDR 154.052.000
WTH Tax 21 for 2009: 4/12 x IDR 154.052.000 = IDR 51.350.666
Monthly WTH Tax 21 monthly: IDR 51.350.666 x ¼ = IDR 12.837.666
When any back pay payment:
Tommy as shown in previous example, in June 2009, received salary increase so that
his salary becomes IDR 3.500.000 a month and be in effect retroactively since
January 2009. Consequently he receives back pay in amount of IDR 5.000.000 (the
underpaid salary from January to May 2009). To calculate WTH tax 21 on the back
pay payment, first the WTH tax 21 is the same amount in every month. For the
following months, the WTH tax 21 each month shall be:
Salary IDR 3.500.000
Deduction
Employment expense 5% x IDR 3.500.000 = IDR 127.000
Pension contribution IDR 100.000 IDR 275.000
Monthly net income IDR 3.225.000
Annual net income IDR 38.700.000
Non taxable income – annual
Taxpayer IDR 15.840.000
Add married IDR 1.320.000 IDR 17.160.000
Taxable income per annual IDR 21.540.000
WTH Tax 21 Liability 5% x IDR 21.540.000 IDR 1.077.000
WTH Tax 21 per month IDR 1.077.000 :12 months IDR 89.750
WTH Tax 21 from Jan-May’09 5 x IDR 89.750 IDR 448.750
WTH Tax 21 that has been withheld IDR 211.250
WTH Tax 21 on the back pay IDR 237.500
Deduction
Employment expense 5% x IDR 29.000.000 IDR 1.450.000
Annual pension contribution 12 x IDR 60.000 IDR 720.000 IDR 2.170.000
Annual net income IDR 26.984.000
In Jul’09 he begins to receive his monthly pension IDR 3.000.000 from JPF. The
WTH 21 on this monthly pension that withheld by JPF shall be as follows:
Based on this case, the calculation o f WTH 21 on this monthly pension that withheld
by JPF on Jan’10 (the 2nd year of his pension) shall be as follows:
Ferry, married with 3 children, works for PT ABC and earns IDR 2.500.000 a month
and He is granted a tax allowance IDR 25.000. The pension contribution paid by him
is IDR 25.000 a month. The WTH 21 shall be as follows:
Royalties, rent and other income in connection with the use of property
Remuneration with respect to the services, employment, and activities
Prizes and awards
Pensions and other periodic payments
Swap premium and other hedging transaction
Profit due to the redemption of debt
WTH Tax 26 rate is 20% or reduced rates according to the Tax Treaty
The WTH tax base is on the following:
Gross Income (GI)
Net income (NI). NI = (certain % x GI)
Tax Object
Interest deposit and saving including interest receipt from the bank which its
establishment in Indonesia
Discount Certificate on Central Bank of Indonesia
The rate - 20% on gross income or treaty rate when interest received by a non
resident taxpayer
The nature of tax – final and non final when interest received by individual
taxpayers which their annual salary do not exceeding the non taxable income.
The withholder tax – Indonesian bank including those located in offshore and
the Central Bank of Indonesia
Tax Object
Interest deposit and saving including interest receipt from the bank which its
establishment in Indonesia
Discount Certificate on Central Bank of Indonesia
Final 5% Taxpayers like real estate whose their core business are in
transfer right on land/building
Non Final Income Tax Taxpayers whose core business are not in transfer right on
Law Article land/building
17
Tax Taxpayers
Rate
2% Construction implementation company which qualify to a small size business
Tax on Lottery
Definition – tax on income derived from lottery
The nature of tax – final
The tax rate – 25% on gross income
Example – PT Japan Paint promoted their product by conducting a lottery IDR
100 million. PT JP will withhold tax on lottery: 25% x IDR 100 million = IDR
25 million
Tax Income Article 22
Introduction to Tax Income Article 22
• Definition – Tax withhold by certain taxpayer on domestic purchasing,
importation, certain domestic selling
• Withholder tax – government institution, government treasury, state owned
company (BUMN) or local owned company (BUMD) and Custom and Excise
Department
Example
• Example PT Mecoindo a metering system company sell 10.000 unit
electricity meter to PT PLN amounting to IDR 100 million. PLN will withhold
income tax article 22 is IDR 100 million x 1,5% = IDR 1,5 million and PT
Mecoindo will receive IDR 98,5 million and with the tax slip IDR 1,5 million.
• Note: Treasury of PLN will remit article 22 to Bank on same day of the
commercial settlement payment by using tax slip (SSP). The tax slip is signed
by the treasurer on behalf of Mecoindo so the name and Tax ID of Mecoindo
should be mentioned on the tax slip. The page 1 of tax slip is for Mecoindo
and the page 5 is for PLN. PLN will file monthly tax reporting on the 14th day
of the following month.
Example
• PT Jakarta Motor (JM) has an importer certificate (API) imported a brand
new car cost USD 59,000, insurance USD 250 and freight USD 750. MOF
Rate is IDR 10.000 per 1 USD and the computation of income tax as follows:
Example
• Example: PT Citra Trading (CT) received and earned some offshore incomes
with the following data:
• Business profit year 2006 from Malaysia amounting to IDR 800 million
• Dividend paid in 2006 amounting to IDR 200 million from Thailand
• Business profit year 2007 from Singapore amounting to IDR 500 million
The number 1 and 2 should be consolidated to the domestic income year 2006 and
number 3 be consolidated to the domestic income year 2007
Maximum tax credit limitation is taken from the lowest amount from the following:
• Tax amount paid on the offshore
• Offshore income divided by the consolidated income and then times by the tax
rate article 17 Income Tax Law
• Total tax liabilities in case that the taxable income lower than offshore income
Example: PT Citra Trading (CT) earned some incomes year 2007 with the following
data:
1) Offshore income IDR 5 billion subject to the tax rate 40%
2) Domestic income IDR 3 billion
So the consolidated net income PT CT on year 2007 is IDR 8 billion (IDR 5 billion +
IDR 3 billion)
The maximum tax credit limitation is taken from the lowest amount of the following:
1) Tax amount paid on the offshore is IDR 2 billion (IDR 5 billion x
40%)
2) (IDR 5 billion : IDR 8 billion) x IDR 2,240 million = IDR 1,4 billion
3) 28% x IDR 8 billion = IDR 2,240 million