Business

Taxation

VAT has become a major source of revenue for the government. Taxation

Tax system

New laws

The current framework of Indonesia’s tax laws dates from 1983 wirh subsequent revisions, most recently in 2000. There are separate laws covering income tax, value added tax (VAT) and sales tax on luxury goods. Other tax laws include the law on the taxing of land and buildings and the law on stamp duty. Individual articles contained in the laws may be supported by implementing regulations and decrees, government regulation and decrees of the Direciorate General of Taxation. The government is committed to a greaser intensification of tax collection including increasing the number of registered taxpayers.

Income Tax

Income tax is applied to resident corporations and individuals an most sources of increase in economic wealth. Income tax os collected both directly and at source through a wide range of withholding taxes, constituting advanced payment of taxation. An exception is local bank time deposit interest, taxable at 20% as final tax.

Witholding taxes

The rates of withholding tax vary according to the nature of the income source. Rates for domestic payment extend up to 15%. Payment made overseas in certain sources of income may be liable to withholding tax up to 20%. Applieable tax treation may redues the rate of withholding tax.

Tax rates

Progressive rates of income tax for individuals rise up to a top rate of 35% applicable to annual taxable income excess of IDR 200 million (approximately USD 20.000). The top rate of corporate income tax is 30% applicable to taxable incomes of more than IDR 100 miliion (USD 10.000). Residents are liable to tax on their worldwide income from all sources. A recent stipulation is the requirement for most individuals, including resident expatriates, to file individual tax returns.

Calculation of Taxable Income

Taxable income is calculated after allowable deduction. For individuals there are income tax exclusions which are set at relatively law income levels. Individuals are broadly but are non?deductible against corporase taxable income. Employers are required to withhold income tax from employees and deposit each month with the state treasury. Employers prepare a consolidated annual tax returns detailing each employee’s individual tax calculation. The employee should then file a separate personal return. Tax returns shoulde be filed by 31 March of the years following the years of assessment.

Corporare taxable income is calculated after the deducation of mosi normal business expenses. Rates of depreciation are regulated, althrough taxpayers may elect either the straight line or double declining method. Provisions that are not deductible are employee benefits in kind as mentioned above. Companies may choose to be taxed on the basis of a financial year other than the calender year. Books of account may be kept in English based on tax office approval. Foreign currency, i.e. US dollars, may be used as the reporting currency if appropriate approval is obtained. Annual filings should be lodged within three months of the financial year, though an extensions may be obtained.

Payment of Taxes

Taxes are paid by monthly installments on a current year basis. The regular installment amount is based on the previous year’s filings aftertaking credit for withholding at source. Any shortfall should be settled by the 25th day of the third month following the end of the financial year. Overpayments of tax may be recovered, but only after a tax audit has been completed. The self?assessment principle, however, underpins Indonesian income tax law.

Value Added Tax

VAT applies to the import and delivery of most goods and service. However, insurance and banking are not subject to VAT. VAT is collected at a standard rate of 18%. The expart of goods in zero? Rated. Taxpayers are required to file a returns in the month following, showing details of all output and input VAT. The net output VAT is then payable by the 20th of the following month. An excess of input VAT may be carried forward. Refunds may be applied for in the case of chronic overpayments. Suppliers who trade with so called ‘VAT Collectors’ will not collect VAT from their customers or clients. The VAT is the paid direct to the State Treasury. Such suppliers may be in constant overpayments situation and may be forved to seek regular refunds.

Sales Tax on Luxury Goods

Sales taxes also include sales tax on luxury goods (PPnBm). This tax applies at the point of import or manufacture and is additional to VAT. It is a non?creditable one?off tax and applies to a wide range of goods. Rates range from 10% to 50%.

Special Industry Rules

Certain industries, in particular production sharing contractors, mining companies under contracts of work and geothermal project are subject to income in accordance with specialist rules. Rates of tax very according to the generation of each respective contract.

Tax Treaties

There are currently. 54 tax treaties in force with other countries. Provisions typically include reduced withholding tax rates on interest, dividends and royalties and a broader definition of the concept of permanent establishment compared with domestic law.