Tax Reform: Some People Are Exempted From Income Tax

Jokowi Just Signed New Regulation Regarding Income Tax

The tax reform carried out by the government brought several new decisions. One of the new policies is to release several groups of individuals and small entrepreneurs from the obligation to pay income tax (PPh).

This reform is contained in the Law on Harmonization of Tax Regulations (HPP) and passed down in Government Regulation Number 55 of 2022 concerning the Adjustment of Regulations in the Income Tax Sector that Jokowi recently signed.

The latest policy for individuals whose salary is below Rp. 4.5 million per month is not subject to tax because it is below the Non-Taxable Income limit (PTKP). PTKP is currently still IDR 4.5 million per month or IDR 54 million per year.

This means that people with a salary above IDR 4.5 million per month are certain to be subject to income tax, but the amount is adjusted accordingly.

The following are the number of rates imposed on workers with salaries above 4.5 million:

  • Income of IDR 60 million is subject to a 5% rate
  • Income IDR 60 million to IDR 250 million is subject to a 15% rate
  • Income IDR 250 million to IDR 500 million is subject to a 25% rate
  • Income IDR 500 million to IDR 5 billion is subject to a 30% rate
  • Income of IDR 5 billion and above is subject to a 35% tariff.

Furthermore, small traders are also exempt from the obligation to pay income tax with a maximum turnover of IDR 500 million per year.

Previously, individual MSMEs were all subject to tax because there was no regulation on turnover limits that were subject to tax. Regardless of their income, they are still subject to a final income tax of 0.5%.

However, with the existence of the latest regulation, namely the Law on Harmonization of Tax Regulations which was just passed last week at the DPR RI Plenary Meeting, individual MSMEs only need to pay taxes if their annual turnover is above IDR 500 million.

For information, income tax or PPh is a tax that is imposed on each additional value of economic capacity received by Taxmates, whether obtained from within or from abroad, which can increase the wealth of each taxpayer (WP).

Taxpayers can be individuals or business entities. Business entities are also required to have an NPWP (Taxpayer Identification Number) and are subject to income tax for the management and control over goods and services.

Some of these business entities are in the form of limited liability companies (PT), firm companies (Fa), limited liability companies (CV), and so on.