Key Highlights of Indonesia’s Harmonization of Tax Regulations (HPP) Law

What Does the New Tax Law in Indonesia Mean for Businesses and Employees?  

Indonesia’s Harmonization of Tax Regulations Law, also known as the HPP Law, brings significant changes for businesses and workers in terms of tax calculations. The wide-reaching changes in the HPP law includes the introduction of new taxes and updates to certain taxes and procedures.

Taxpayers and businesses must understand how tax calculations will be made under the reforms as both businesses and employees will be affected. The law came into effect on 29 October 2021 but includes many articles due to take place later, in 2022. Here are the key highlights businesses and employees need to know:

Key Highlights from the HPP Law

Personal Income Tax

A new personal income tax rate bracket of 35% has been introduced for individuals earning more than IDR 5 billion. Changes to the income threshold for each progressive rate has also been introduced:

New Personal Income Tax Brackets (January 2022):

Personal Income Tax BracketsPersonal Income Tax Rates
0 – IDR 60 million5%
> IDR 60 million – IDR 250 million15%
> IDR 250 million – IDR 500 million25%
> IDR 500 million – IDR 5 billion30%
> IDR 5 billion35%

Previous Personal Income Tax Brackets:

Personal Income Tax BracketsPersonal Income Tax Rates
0 – IDR 50 million5%
> IDR 50 million – IDR 250 million15%
> IDR 250 million – IDR 500 million25%
> IDR 500 million30%

Corporate Income Tax

The Indonesian Government cancelled the provision to reduce the corporate income tax rate from 22% to 20% in 2022. As such, the corporate income tax rate for 2022 will be 22%.

Value-Added Tax (VAT)

The VAT rate will gradually increase throughout the year. From 1 April 2022, the VAT rate will increase from 10% to 11%, and then to 12% by the latest in January 2025.

Certain goods and services have also been reclassified as VAT objects:

  • Goods
    • Mining and drilling products taken directly from the sources
    • Essential foods
  • Services
    • Medical/health services
    • Social services
    • Courier services
    • Financial services
    • Insurance services
    • Education services
    • Non-commercial broadcasting services
    • Land, water and domestic air transportation services
    • Employment/manpower services
    • Public telephone services that use coins
    • Money transfer by postal service

Benefits-In-Kind (BIK)

Benefits-in-kind in the form of remuneration in relation to work is now subject to income tax. However, not all BIKs are subject to tax, with exemptions in:

  • Food, beverages, and ingredients for all employees
  • BIKs provided in certain regions/areas
  • BIKs provided by the employer in carrying out work
  • BIKs sourced or financed by the State Budget (APBN), Regional Budget (APBD), and/or Village Revenue and Expenditure Budget (APBNDesa)
  • BIKs with certain types and/or limitations

Carbon Tax

To encourage sustainable economic progress, a carbon tax has been introduced to cut carbon emissions that have an impact on the environment. The carbon tax will be imposed on individuals and entities that purchase goods containing carbon and/or carry out activities that produce carbon emissions.

The carbon tax rate is set at a minimum IDR 30 per kilogram of CO2 equivalent and will take effect on the 1 April 2022.

Tax Provisions and Procedures

The National Identity Number (NIK) will replace the role of the Tax Identification Number (NPWP) as the identity number of individual taxpayers. Businesses will use their Business Identification Number (NIB) as their Taxpayer ID Number.

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