Archive | September, 2016

Indonesian Taxation Regulation that bothers me

11 Sep

I just came back from my husband’s niece birthday party. At the end of the party my husband take me to a room that has some aunties and uncles who are busy talking about Indonesian tax amnesty.

One of the conversation that came up is about declaring the value of a property and revaluation of a property. I told them that since in Indonesian Individual Tax Reporting regulation you have to list down all of your assets and liabilities, it would be best that if you haven’t list them down on your previous income tax report, on this tax amnesty, you put down the purchase price of that property and pay ransom at the lowest rate. You could just update the value on your next tax report without having to pay the ransom, I said.

Straight away, one of the uncle told me that any tax consultant that suggest that idea is a blunder tax consultant. Under Indonesian Income Tax rule, if you do a revaluation of an asset, you have to pay a final income tax of 10% from the assets value increment. That is weird I said, from my experience and knowledge as an accountant, revaluation of an asset is just one way of showing the updated current value of the asset so you can have a better picture of the current condition. Unless you sell the asset, there would be no Income received, and if there is no income, there shouldn’t be any income tax liability. Revaluation of an asset doesn’t equal an income unless it is a realised gain ( there is a possibility of realised loss as well, right?).

But guess what, based on the Indonesian Ministry of Finance Regulation no. 79 year 2008 (PMK 79/2008), you do get taxed 10% of Final Income Tax based on the increment from revaluation of an asset. There is an update on this; based on the PMK 191/2015, if you do a revaluation of fixed assets until 31 December 2016, you only need to pay 3%of  Final Income Tax. You can read further from the Taxation Department website:

Final Income Tax in Indonesia means, doesn’t matter whether you are an Indonesian Tax Resident or Non Indonesian Tax Resident, for any final income tax you have paid, you wont get any tax credit nor tax refund, even though your annual income is actually are still below the non taxable income threshold (gross annual income of 0-54 million rupiah) =D

So, yes, that is one case of Final Income Tax based on Unrealised Gain on Revaluation of Asset that do bothers me. Why do you have to pay income tax when there is no income?

Another one that bothers me so much is the Indonesian Joint Income Tax reporting for married couple.

Example #1 : Let say you are a female earning 600 million rupiah from work/business on year 2016. Your cute boyfriend on that same year also earning the same amount of 600 million rupiah. When you have to submit your income tax return, you know for sure that the calculation is roughly like this :

Each of you have a taxable income of 546 million (600 million – 54 million non taxable income).

The progressive income tax return based on Income Tax Regulation item 17 (UU PPH Ps.17): 0-50 million = 5%, >50million-250 million = 15%, >250million – 500 million= 25%, >500 million = 30%.

Thus on that 546 million, you will get tax progressively based on the tax bracket :

1). First 50 million = 50 million x 5% = 2.5 million

2). Next 200 million = 200 million x 15% = 30 million

3). Next 250 million = 250 million x 25% = 62.5 million

4). Last 46 million = 46 million x 30% = 13.8 million

The total taxable income for each individual is 546 million and based on UU PPH Ps. 17, the individual income tax that each of them has to paid is 108.8 million rupiah. So, you have to pay 108.8 million to the Tax Department (Dirjen Pajak) and your boyfriend will also pay the same amount of 108.8 million to Dirjen Pajak. The total amount of tax collected from the two single (not married) working Indonesian Tax Resident is 217.6 million.

Now, if you accept your boyfriend proposal and marry him, under the Indonesian Tax Regulation, now the taxation will be based on the joint income. It is recommended by the tax department that the wife to delete her tax file number and put all of her income details on her husband income tax return file.  (Lately there has been some changes where the tax department is urging everyone to have their own tax file number)

Example #2 : Assuming another scenario, they are a married couple. In 2016, the wife earning 600 million rupiah from her business and her husband also earning 600 million rupiah from his work/business; no kids yet.

So, we have same 2 working Indonesian Tax resident with same amount of income of 600 million each, with probably more household expense since they are married, but as you will see below the government is putting more burden on you with the joint income reporting scheme.

For married couple with no kids, the non taxable for joint income is 112.5 million rupiah. Thus, the taxable income is 1,087.5 million ( husband 600 million + wife 600 million – non taxable joint income 112.5 million).

Using the same progressive tax rate, the 1,087.5 million will get taxed :

1). First 50 million = 50 million x 5% = 2.5 million

2). Next 200 million = 200 million x 15% = 30 million

3). Next 250 million = 250 million x 25% = 62.5 million

4). Last 587.5 million = 587.5 million x 30% = 176.25 million

So, the total amount income tax owed to the Tax Department is 271.25 million rupiah. That is an extra 53.65 million rupiah of your household income is being taken by the Tax Department just because you are a married couple and you have to combine your income for taxation purposes. Is it fair? You tell me, I don’t think it’s fair.

Two same source of income yet you have to pay more just because you are married. Married people usually have more expenses to pay than a single person, especially when later on children come into the picture. This Joint Income Regulation just doesn’t make sense for me. Maybe because I have learn about Australian tax regulation so I’ve got a comparison.

In Australia, Individual Tax Return is  Individual Tax Return, it doesn’t change when you get married. Why do you have to get taxed more just because you are married? In my personal opinion, that Joint Income Taxation Scheme is ripping off one individual’s right of getting the progressive tax rate correctly. It put her/him straight into the highest tax rate of the joint income balance.

So, there you go, two Indonesian Taxation Regulations that bothers me so much :

  1. Final Income Tax on unrealised gain from revaluation of assets.    Final income tax actually bothers me too but my teacher told me without this final income tax on bank interest, on shares/land/property transactions, etc., this country won’t survive. So I will let it slide for now.
  2. Married couple joint income taxation regulation which will increase your individual income tax even though you are earning the same amount of money as the single does. Singles pay less tax while married for more tax, very absurd. Higher each individual income tax due to higher earnings, I can understand. But higher each individual income tax due to married status, I am totally dumbfounded of this absurdity.

I hope after tax amnesty season they will make changes to those two regulations. Unrealised gain from revaluation of assets should only get taxed when it is realised and as for the married couple joint income tax regulation, should just delete it, along with the extra rule for female tax payer.

If Indonesia want to compete, they should make changes to the tax guideline, one of them is on the area of individual income tax : different forms (1770, 1770s, 1770 ss), different treatment (male/female-married/not married), etc. I am supporting that each individual should have their own tax file number and please if possible, simplify the tax form with a single form for all individual tax report, and focus on each individual income/expenses, not focusing too much on their gender, their line of work, nor their marital status.

Sometimes people are scared of tax not because they can’t pay tax but because it looks so complicated that they don’t understand, and because they don’t understand they are more likely to not join the group. Educate the people, the more educated the person, the more likely they will pay tax.

I have said too much, I hope you all enjoy your long weekend.



Steviani CPA