Are Withholding Receipts a Must for Employees with Income Below PTKP?

Question:

Allow me to introduce myself, my name is Halda. I am a tax staff in a Cikarang-based manufacturing company. Our company has many employees whose income does not exceed the personal tax relief (penghasilan tidak kena pajak, hereinafter referred to as PTKP). All of these employees are permanent employees in our company. My question is, are we required to prepare withholding receipts for these employees? Kindly explain. Thank you.

Halda, Cikarang.

Answer:

Thank you for your question, Ms. Halda. Please note that withholding agents have several obligations in respect of the withholding of Article 21 Income Tax and/or Article 26 Income Tax.

These obligations can be found in the Minister of Finance Regulation No. 168 of 2023 concerning Instructions for the Implementation of Tax Withholding on Income in Connection with Work, Services and Activities of Individuals (MoF Reg. 168/2023).

Article 20 paragraph (1) of MoF of Reg. 168/2023 reads:

“(1) Withholding Agents must:

1. calculate, withhold, remit and file Article 21 Income Tax and/or Article 26 Income Tax in Connection with Work, Services and Activities payable for each Taxable Period;

2. prepare the withholding receipt of Article 21 Income Tax and/or Article 26 Income Tax and provide the withholding receipt to the income recipients subject to the tax withholding;

3. prepare records or working paper for the calculation of Article 21 Income Tax and/or Article 26 Income Tax in Connection with Work, Services and Activities for each income recipient; and

4. retain records or working papers for the calculation referred to in subparagraph c pursuant to statutory provisions.”

Pursuant to Article 20 paragraph (1) subparagraph b MoF Reg. 168/2023, withholding agents must prepare the withholding receipt of Article 21 Income Tax and/or Article 26 Income Tax and provide the withholding receipt to the income recipients subject to the tax withholding.

The regulation of Article 21 Income Tax and/or Article 26 withholding receipts has been re-stipulated under the Director General of Taxes Regulation No. PER-2/PJ/2024 concerning the Format and Procedures for the Preparation of Article 21 Income Tax and/or Article 26 Income Tax Withholding Receipts as Well as the Format, Procedures for the Completion and Procedures for the Filing of Periodic Article 21 Income Tax and/or Article 26 Income Tax Returns (PER-2/2024).

Similar to the provisions under Article 20 paragraph (1) of MoF Reg. 168/2023, Article 2 paragraph (1) of PER-2/2024 also reaffirms withholding agents’ obligation to prepare withholding receipts, provide withholding receipts to income recipients and file the withholding receipts t using Periodic Article 21 Income Tax and/or Article 26 Income Tax Returns.

Withholding receipts, however, do not need to be prepared if there is no payment of income. This provision is evident in Article 3 paragraph (1) of PER-2/2024. On the other hand, there are conditions where Article 21 Income Tax and/or Article 26 withholding receipts remain required to be prepared as stated in Article 3 paragraph (2) of PER-2/2024.

“(2) Article 21 Income Tax and/or Article 26 Income Tax Withholding Receipts referred to in Article 2 continue to be prepared if:

1. no Article 21 Income Tax is withheld because the amount of income received does not exceed Personal Tax Relief;

2. withheld Article 21 Income Tax amounts to nil because:

1. of the existence of a withholding exemption certificate; or

2. subject to a rate of 0% (zero percent);

1. Article 21 Income Tax is borne by the Government pursuant to statutory tax provisions;

2. Article 21 Income Tax is granted Income Tax incentives pursuant to statutory tax provisions; and/or

3. withheld Article 26 Income Tax amounts to nil pursuant to the provisions under the tax treaty as indicated by the existence of a certificate of domicile and/or receipt of the certificate of domicile of non-resident taxpayers.”

In response to your question, your company’s permanent employees whose income does not exceed PTKP are basically not subject to Article 21 Income Tax withholding. Although no Article 21 Income Tax is withheld, your company as withholding agent remain required to prepare Article 21 Income Tax withholding receipts.

Article 21 Income Tax withholding receipts refer to the monthly Article 21 Income Tax withholding receipts - (form 1721-VIII) prepared at each taxable period. Later, at the last taxable period, your company must issue Article 21 Income Tax withholding receipts for permanent employees or pensioners who periodically receive pension-related money - (form 1721-A1).

This concludes our answer. We hope it satisfies your inquiries.

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