The harmonization of the Tax Regulation Law

The House of Representatives has quite recently passed The Law of Harmonization of Tax Regulations (Harmonisasi Peraturan Perpajakan/”HPP” Law). The provision of this HPP Law includes revisions of the Law of General Provisions and Tax Procedures, The Income Tax Law and the VAT Law.

Personal Income Tax

With regard to the General Provisions and Tax Procedures, the HPP Law stipulates the integration of the population database with the tax administration database. The Single Identity Number (Nomor Induk Kependudukan/”NIK”) shall be used as the personal individual’s Tax ID Number.

With regard to the Income Tax aspects, the HPP Law provides amendments to personal income tax brackets and personal income tax rates. The maximum personal income tax rate of 35 percent is introduced. The personal income tax brackets and rates can be seen in the following summary:

Personal Income Tax Brackets	Personal Income Tax Rates
NIL until IDR 60 million	5 %
IDR 60 million - IDR 250 million	15 %
IDR 250 million - IDR 500 million	25 %
IDR 500 million - IDR 5 billion	30 %
in excess of IDR 5 billion	35 %

Corporate Income Tax

Furthermore, there is an update pertaining to the corporate income tax rate which is currently governed under article 17 of the Income Tax Law. The corporate income tax rate shall be 22 percent starting in 2022. Public listed companies having a minimum of 40 percent paid-up shares traded on the stock exchange, and fulfilling certain criteria, are eligible for a 3 percent lower rate than the statutory corporate income tax rate. This provision abolishes the previously planned corporate income tax rate of 20 percent.

The HPP Law also contains provisions of the government’s authority to establish bilateral and multilateral agreements with other countries or jurisdictions, not only in the context of a double tax avoidance treaty, but also in bilateral/multilateral tax cooperation for the prevention of base erosion and profit shifting.

With regard to the VAT aspects, the HPP Law amends the VAT rate in stages. The VAT rate will increase from 10 percent to 11 percent effective as of 1 April 2022, and shall subsequently be increased to 12 percent effective no later than 1 January 2025.

Other important VAT-related changes include the provision of several types of services which may now be subject to VAT, such as medical health services, financial services, insurance services, educational services. The implementing regulations of such extension of VAT coverage yet remain to be seen.