Starting January 1, 2024, Indonesian businesses and their employees will switch to a new monthly withholding tax system, per Government Regulation No. 58 of 2023. This new regulation replaces the previous annual calculation with a more straightforward monthly withholding tax system.
This change will directly impact Article 21 (PPh 21) income tax on salaries. The purpose of these changes is to make the withholding tax process more simplified and streamlined for employers and employees alike.
There have been some recent changes made to how PPh 21 income tax for employees in Indonesia is calculated, thanks to the introduction of Government Regulation No. 58. To help you better understand what these changes entail, here's a quick breakdown of the fundamental aspects that have been altered.
A simplified Effective Tax Rate (ETR) has replaced the traditional progressive tax rate used in monthly calculations. This new ETR is applied directly to the gross income without annualization or deductions.
It already factors in relevant deductions such as non-taxable income, occupational expenses, and pension contributions/expenses. This makes the process of calculating taxes more accessible and more straightforward.
A final yearly calculation uses the standard progressive tax rate to reconcile discrepancies between ETR withholdings and actual tax owed. Any underpayments are collected, and overpayments are refunded.
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When determining the taxable income under Article 21 and/or Article 26 for work, services, or activities, the following shall be taken into account for deduction purposes:
| Income category | Types of income |
| Regular and irregular income of employees | Salaries, wages, bonuses, and other forms of compensation |
| Pension income | Regular payments from a pension fund |
| Income of board members and supervisors | Irregular payments |
| Income of temporary employees | Daily, weekly, piecework, and monthly wages |
| Income of freelancers and non-employees | Honorariums, commissions, fees, and other rewards |
| Income of activity participants | Pocket money, representation money, meeting fees, prizes, and similar rewards |
| Partial withdrawals from pension programs | Participants who are still employed |
| Income of former employees | Production service, bonuses, gratuities, and other irregular rewards |
You can subtract the permitted deductions from the gross income to calculate the net income for a Tax Year or a portion.
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Government Regulation No. 58 of 2023 introduces a new system for calculating PPh 21 income tax for individuals in Indonesia. This system uses ETR for monthly and daily income, simplifying calculations and improving cash flow. Let us break it down:
To clarify the tax liabilities, we have categorized the monthly income by marital status and income range. Refer to the table below for the specific ETR applicable to your income range and category.
Category A applies to individuals with the following marital statuses:
Category B applies to individuals with the following marital statuses:
Category C applies to individuals with the following marital statuses:
This applies to non-permanent employees paid daily/weekly/unit/piece rate.
The new regulation doesn't specify ETRs for daily income above IDR 2,500,000.
The new income tax rate for PPh 21 applies to all individual taxpayers earning income from employment, services, or activities in Indonesia. This includes both private sector and public sector employees, encompassing:
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Understanding how income tax is calculated can be a complex task. One important thing to remember is that your income type and marital status determine the amount of income tax withheld from your salary.
By understanding these factors, you can ensure you are taxed accurately and fairly.
| Taxpayer category | Calculation method |
| Permanent employees and pensioners | Calculated using monthly effective rates |
| Board members and supervisors | Calculated using an effective monthly rate |
| Temporary employees | Calculated using different rates based on income and payment frequency |
| Non-employees, activity participants, and others | Calculated using the standard income tax rate |
| Overseas individual taxpayers | Calculated using a 20% withholding or double taxation treaty rate |
To ensure smooth business operations and avoid penalties in Indonesia, individuals and organizations must stay aware of the reporting deadlines and comply with them.
The new monthly withholding system may initially lead to fluctuations in paychecks compared to before. This is because it uses different rates than the traditional annual calculation.
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