New Rules for PPh and VAT in the Bill on Harmonization of Tax Regulations

With this ratification, the individual income layer (bracket) which is subject to the lowest income tax rate (PPh) of 5 percent is increased to Rp60 million.

Jakarta, 07/10/2021 Ministry of Finance – The government and the House of Representatives (DPR) have officially agreed on the Draft Law (RUU) for Harmonization of Tax Regulations (HPP) into Law in today’s Plenary Session, Thursday

With this ratification, the individual income layer (bracket) which is subject to the lowest 5 percent income tax rate (PPh) is increased to Rp60 million from the previous Rp50 million, while the Non-Taxable Income (PTKP) remains the same. This increase in the lowest tariff layer provides benefits for low- and middle-income people to pay lower taxes than before.

On the other hand, the government changed the tariff and added a layer of personal income tax by 35 percent for taxable income above IDR 5 billion. These changes are emphasized to improve justice and support for middle and low income people, including individual MSME entrepreneurs and corporate MSMEs, and for individuals who are more able to pay more taxes.

The HPP Bill also stipulates a corporate income tax rate of 22 percent for the 2022 fiscal year onwards, in line with the global tax trend which has begun to increase income from income tax while maintaining the investment climate. This rate is lower than the average corporate income tax rate for ASEAN countries (22.17%), OECD countries (22.81%), American countries (27.16%), and G-20 countries. (24.17%)

Furthermore, the HPP Bill also regulates the expansion of the Value Added Tax (VAT) base by reducing VAT exemptions and facilities. Basic goods that are really needed by the community, health services, educational services, social services and several other types of services will be provided with VAT exempt facilities.

Meanwhile, the government also sets a single rate for VAT. The increase in the VAT rate was agreed to be carried out in stages, namely to 11 percent starting April 1, 2022 and to 12 percent no later than January 1, 2025. This policy takes into account the conditions of the community and the business world which have not fully recovered from the impact of the Covid-19 pandemic. When viewed globally, the VAT rate in Indonesia is relatively lower than the world average of 15.4%, and also lower than the Philippines (12%), China (13%), Saudi Arabia (15%), Pakistan (17 %) and India (18%).

In the HPP Bill, there is also a new breakthrough, namely integrating the population database with the tax administration system. The use of a Population Identification Number (NIK) in lieu of an individual Taxpayer Identification Number (NPWP) will further facilitate individual Taxpayers in exercising their rights and carrying out their tax obligations.

However, the use of NIK does not mean that all Indonesian citizens are required to pay income tax, but still pay attention to the fulfillment of subjective and objective requirements for paying taxes, namely if an individual has a year’s income above the PTKP or an individual entrepreneur has a gross turnover of more than Rp500 million a year.

The Voluntary Disclosure Program (PPS) is also implemented in this HPP Bill. The program aims to improve voluntary compliance by taxpayers and is implemented based on the principles of simplicity, legal certainty, and expediency. PPS will take place on January 1-30 June 2022.

The HPP Bill is an inseparable part of a series of tax reforms that have been carried out so far, both administrative reforms and policy reforms. This bill will also be a very important stepping stone for the next reform process. The implementation of various provisions contained in the HPP Bill is expected to play a role in supporting efforts to accelerate economic recovery and realize sustainable economic growth.