Starting from the 2022 tax year, income in the form of compensation received due to work or services rendered will be considered taxable income for the recipient. It may also be subject to taxation for the provider based on Law No.7 of 2021 concerning the Harmonization of Tax Regulations ("Law 7/2021")
Benefits in kind are a form of goods given to individuals or workers that does not involve cash payments. While companies generally provide salaries or wages to employees as compensation for their work, the provision of rewards in kind has its own distinctions.
In the case of providing benefit in kind, variations can arise in the form, rate, or amount provided, as this is tailored to the policies of each company and the work environment where the employee operates. Common forms of benefit in kind provided by companies include goods, facilities, or other types of enjoyment. In the past, the provision of benefit in kind was not subject to taxation. However, with the passage of time, policies have changed, and now benefits in kind are also considered taxable income. The rationale behind this change is that benefits in kind are viewed as a form of income that should be subject to taxation.
However, there is a shift in the tax treatment of benefit in kind that should be noted, which it was previously not considered taxable income. Previously, benefit in kind were not considered taxable objects, so reporting the receipt of benefit in kind was not mandatory in the Annual Tax Return. Nevertheless, the government recognized an opportunity to increase national revenue and thus decided to impose taxation on the receipt of benefit in kind.
The imposition of tax, regulations and provisions govern the implementation of taxation on benefit in kind. This aims to provide guidance for taxpayers, tax institutions, tax professionals, and tax officials in terms of the provision and use of benefit in kind.
Law 7/2021, enacted in October 2021, serves as the legal basis for the taxation of benefit in kind starting from the year 2022. According to Law 7/2021, companies can provide benefit in kind as a part of income for employees, and this income will be taken into account for tax calculations. Companies will carry out tax deductions or withhold taxes on the value of benefit in kind provided, following the provisions of Article 21 of the Income Tax.
Law 7/2021 also delineate the types of benefit in kind that are subject to taxation and those that are not. Some type of benefit in kind that are not taxable include food, beverages, or other pleasures given to employees, as well as benefits related to specific regions, job duties, or funded by public budgets. On the other hand, benefit in kind with high economic value such as allowances, commissions, bonuses, and the like are subject to taxation.
The imposition of tax on benefit in kind also carries an element of fairness, ensuring that all taxpayers receive equitable treatment. Previously, the receipt of benefit in kind often had significant value and increased from year to year without being subject to taxation. The introduction of this tax is expected to bring fairness to the distribution of the tax burden. For investors who invest in and operate companies in Indonesia, it is important to understand this tax on benefit in kind to avoid misunderstandings and unwanted outcomes.
If you, as a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at firstname.lastname@example.org for further consultation.
Author: Suryani Lim