New Art. 21 Income Tax Withholding Scheme on Non-Permanent Employees

Question:

My name is Novi. I am a human resources staff in an electronics company. Our company has numerous non-permanent employees whose salaries or wages are calculated based on working hours or days.

I have recently heard of a new regulation on Article 21 Income Tax withholding. Kindly inform me if there are any changes in the withholding provisions for non-permanent employees. If so, what are the current Article 21 Income Tax withholding provisions for non-permanent employees? Please explain. Thank you.

Novi, Jakarta.

Answer:

Thank you for your question, Ms. Novi. The government has recently issued the regulation concerning Article 21 Income Tax withholding by introducing an effective rate mechanism.

The regulation is included in Government Regulation No. 58 of 2023 concerning the Rates of the Withholding and Imposition of Article 21 Income Tax on Income in Connection with Work, Services or Activities of Individual Taxpayers (Gov. Reg. 58/2023).

The regulation stipulates the use of effective Article 21 Income Tax withholding rates for the first taxable period until the taxable period before the last taxable period (e.g. January to November).

Nantinya, pada taxable period terakhir (misalnya Desember) atau pada saat penghitungan kembali Article 21 Income Tax withholding selama 1 tahun pajak, withholding agents tetap harus merujuk pada ketentuan tarif PPh Article 17 paragraph (1) subparagraph a UU PPh.

The regulation concerning Article 21 Income Tax withholding is redefined with the issuance of 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).

Before going further, we need to revisit the definition of non-permanent employees under MoF Reg. 168/2023. Article 1 number 11 of MoF Reg. 168/2023 states:

“11. Non-Permanent Employees are Employees, including freelancers, who only receive income if the Employees concerned work, based on the number of working days, the number of produced work units or the completion of a type of work requested by the employer.”

Next, Article 5 paragraph (1) subparagraph d of MoF Reg. 168/2023 outlines the types of non-permanent employees’ income subject to Article 21 Income Tax and/or Article 26 Income Tax withholding that may be in the form of daily wages, weekly wages, unit wages, piece rates and wages received monthly.

Based on income that may be received by non-permanent employees, the tax base and Article 21 Income Tax withholding are stipulated under Article 12 paragraph (2) of MoF Reg. 168/2023.

“(2) The tax base and the withholding of Article 21 Income Tax for Non-Permanent Employees, shall be, if the gross income referred to in Article 5 paragraph (1) subparagraph d:

1. is not received or accrued monthly and the amount of daily gross income is up to IDR 2,500,000.00 (two million five hundred thousand rupiah), amounts to:

1. daily gross income if income is received or accrued daily; or

2. average daily gross income if income is received or accrued other than daily.

1. is not received or accrued monthly and the total gross income per day is more than IDR2,500,000.00 (two million five hundred thousand rupiah, amounts to 50% (fifty percent) of the total gross income; or

2. is received or accrued monthly, amounts to the total gross income.”

Similar to the regulation under Gov. Reg. 58/2023, Article 21 Income Tax withholding rates are divided into effective rates and rates pursuant to Article 17 paragraph (1) subparagraph a of the Income Tax Law. The effective rates of Article 21 Income Tax withholding consist of monthly effective rates pursuant to Article 13 paragraph (2) subparagraph a of MoF Reg. 168/2023 and daily effective rates pursuant to Article 13 paragraph (2) subparagraph b of MoF Reg. 168/2023.

The calculation of Article 21 Income Tax withholding on the income of non-permanent employees is elucidated in Article 16 paragraph (2) of MoF Reg. 168/2023. The following is a summary of the calculation formula and its illustration.

*Based on the amount of daily effective rates under the Appendix of Gov. Reg. 58/2023.

**Based on category B monthly effective rates under the Appendix of Gov. Reg. 58/2023.

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

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