Understanding Indonesian Tax Policies
Indonesia’s recent tax policy adjustment has sparked discussion and concern among the public, many of whom are worried about an increase in their tax burden. However, a closer look reveals some truth behind it all.
Starting January 1st 2024, Indonesia has implemented a simplified calculation system in response to widespread complaints regarding the unclear calculation of annual tax income. This issue always surfaces every year, especially every April.
The new system categorizes income based on monthly gross income and annual value, a change from the previous annual calculation method. While seemingly having a more complex calculation, this change does not result in a significant difference in tax obligations. It rather aims to reduce the burden of sizable year-end payments by applying higher monthly payments based on the Effective Tax Rate (ETR).
How exactly is this ETR applied?
The calculation system is divided into two categories: Monthly ETR for individuals with permanent employee status and Daily ETR for non-permanent employees who receive daily, weekly, unit or lump sum gross income.
Monthly ETR is further divided into three tiers:
- Monthly ETR A: Unmarried individuals without dependents, unmarried individuals with one dependent, and married individuals without dependents.
- Monthly ETR B: Unmarried individuals with two or three dependents, and married individuals with one or two dependents.
- Monthly ETR C: Married individuals with three dependents.
For Daily ETR, a 0% rate applies for income up to US$28.79 (Rp450,000), and a 0.5% rate applies for income above Rp450,000 up to US$159 (Rp2.5 million).
Learn more about the categorization and effective tax rates here.
Calculation Example
To gain deeper insights into Indonesia’s new income deduction rate and its implications, read the full report directly from the Tax Office: Perubahan Tarif Pemotongan PPh 21 Terbaru Tahun 2024: Tarif Efektif Hingga Contoh Perhitungan. [https://www.pajakku.com/read/399fbf5a-37d2-49b3-a19e-9b8a4e11a016/Perubahan-Tarif-Pemotongan-PPh-21-Terbaru-Tahun-2024:-Tarif-Efektif-Hingga-Contoh-Perhitungan-]
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