The regulations were issued in late June 2016, with the increases to the non-taxable amounts of income being effective retroactively from 1 January 2016. Because the changes are effective retroactively, employers must recalculate the amount of Article 21 income tax payable for their employees. There may be instances when this recalculation shows a tax overpayment for the employee. Such overpayments are to be used to offset the following month’s amount of tax payable. Also, this change may have implications for employers with employees who stopped working during the applicable period.
While the increased amounts of non-taxable income will result in the potential loss of tax revenue, the expectation is that this loss will be offset by more consumption spending by individuals. Thus, there would be increases in the collection of other tax revenues—such as the value added tax (VAT), the sales tax on luxury goods, and corporate income tax. The loss of tax revenue also is to be compensated through other initiatives, such enhanced tax collection by means of individual tax audits and a tax amnesty program.
Read a July 2016 report [PDF 774 KB] prepared by the KPMG member firm in Indonesia: Further increase to non-taxable individual income
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