Government Regulation Number 55 of 2022 amends several provisions regarding income tax, including 0.5% final income tax, which was previously governed in Government Regulation Number 23 of 2018. Final income tax rate of 0.5% is given when income from domestic taxpayer business (including individuals, cooperatives, limited partnerships, firms, limited liability companies, village-owned enterprises/village-owned joint ventures) has a gross income of less than IDR 4.8 billion in one tax year. Individual taxpayers with a certain gross income, up to IDR 500 million in one tax year, are no longer subject to income tax according to Article 60 paragraph 1 of Government Regulation Number 55 of 2022.

The gross income used as a reference for imposing 0.5% final income tax rate in a certain tax year is the previous tax year's gross income. The gross income must be derived from the total gross income of the company. As a result, the amount of gross income for companies with branches is calculated by adding the gross income of branch to central gross income. Furthermore, gross income of married taxpayer who choose to separate assets or carry out separate tax obligations is calculated using the combined gross income of the husband and wife's businesses.

It should be noted that imposition of 0.5% final income tax rate is not an absolute determination for taxpayers with a gross income up to IDR 4.8 billion. Those taxpayers are still allowed to use rate specified in Article 17 of Income Tax Law. However, once a taxpayer has used rate specified in Article 17 of Income Tax Law, they will be unable to use 0.5% final income tax rate according to Government Regulation Number 55 of 2022.

List of Taxpayers Exempted from Imposition of 0.5% Final Income Tax Rate

Gross income limit to IDR 4.8 billion is not the only criterion for obtaining 0.5% final rate under Government Regulation Number 55 of 2022. Provisions of Article 56 in the regulation govern several income exemptions from the imposition of 0.5%. final income tax rate. These incomes are:

1. Income from services related to casual work, including:

• Independent expert, such as lawyers, accountants, architects, doctors, consultants, notaries, land deed officials, appraisers, and actuaries;
• Musicians, presenters, singers, comedians, movie stars, soap opera stars, advertisement stars, directors, film crews, photo models, models, performers, and dancers;
• Sportsman;
• Advisors, teachers, trainers, speakers, extension workers, and moderators;
• Authors, researchers, and lecturers;
• Advertising agency;
• Supervisor or project manager;
• Intermediary;
• Merchandise vendor officers;
• Insurance agent; and
• Multilevel marketing or direct sales distributor, as well as other similar activities.

2. Foreign income on which tax is payable or has been paid

3. Income that are subject to final income tax under other provisions

4. Income that are not subject to income tax

Then, what income tax rate should they use?

If taxpayers do not meet the criteria for using 0.5% final income tax rate based on Government Regulation Number 55 of 2022, they can use rate specified in Article 17 of the Income Tax Law. Furthermore, under several conditions, taxpayers can still obtain other income tax facilities, such as:

• A 50% reduction in the income tax rate in accordance with Article 31E of the Income Tax Law if the gross turnover is up to IDR 50 billion;
• A reduction in corporate income tax in accordance with Article 29 of Government Regulation Number 94 of 2010 if the taxpayer makes a new investment in a pioneer industry; and
• A reduction of corporate income tax in accordance with Articles 75 and 78 of Government Regulation Number 40 of 2021 if business entity taxpayers who carry out business activities in Special Economic Zones invest in main activities or in other activities.

Period of Imposition 0.5% Final Income Tax

Period of imposing 0.5% final income tax rate is divided into 3 for each taxpayer type. The time period is same as previous provisions in Government Regulation Number 23 of 2018, which are as follows:

• 7 (seven) years for individual taxpayers;
• 4 (four) years for corporate taxpayers in the form of cooperatives, limited partnerships, firms, village-owned enterprises/community-owned village-owned enterprises, or individual companies established by 1 (one) person; and
• 3 (three) years for corporate taxpayers in the form of a limited liability company.

Slightly different from the previous provisions, a new type of corporate taxpayer, namely individual companies, can now use 0.5% final income tax rate for four years. This complies with Article 109 of Law Number 11 of 2020 on Job Creation.

Furthermore, 0.5% final income tax rate imposition is calculated as follows:

1. The imposition period begins in tax year when taxpayer is registered if taxpayer is registered after Government Regulation Number 55 of 2022 enactment;
2. The imposition period begins in 2022 if the Taxpayer of a village-owned business entity/joint-village-owned business entity or an individual company was registered prior to Government Regulation Number 55 of 2022 enactment;
3. The imposition period begins in 2018 until the end of 7/4/3 years or taxpayer no longer meets the criteria. This provision applies to individual and corporate taxpayers in the form of cooperatives, limited partnerships, firms or limited liability companies that registered before Government Regulation Number 23 Year 2018 applies;
4. The imposition period begins in tax year of individual and corporate taxpayer in the form of cooperatives, limited partnerships, firms, or limited liability companies registered until the end of 7/4/3 years or taxpayer no longer meets the criteria. This provision applies to taxpayer that registered after Government Regulation Number 23 of 2018 enactment until Government Regulation Number 55 of 2022 enactment.

Furthermore, if taxpayer was registered prior to effective date of Government Regulation Number 55 of 2022, and no longer meets the criteria for using 0.5% final income tax rate under Government Regulation Number 23 of 2018, they are not subject to final Income Tax under Government Regulation Number 55 of 2022.

How to Calculate Final Income Tax of 0.5% According to Government Regulation Number 55 of 2022?

Income tax is calculated by multiplying gross income by 0.5% rate. Gross income used as a basis for tax imposition is compensation or replacement value in the form of money or the value of money received or obtained from business, before deducting sales discounts, cash discounts and/or similar deductions.

1. Individual Taxpayers

Individual taxpayers are subject to 0.5% final income tax rate if their gross income exceeds IDR 500 million in a single tax year. This means that individual taxpayers' gross income of up to IDR 500 million in a single tax year is exempted from income tax. The amount of gross income that is not subject to income tax is total gross income calculated cumulatively since the first tax period in a tax year or part of a tax year. Therefore, if an individual's total gross income does not exceed IDR 500 million in a tax year, no tax is due.

Example:

 

2. Corporate Taxpayer

Corporate income tax payable is calculated by multiplying total gross income of business every month with 0.5% final income tax rate.

If taxpayer's gross income exceeds IDR 4.8 billion in the current fiscal year, excess income will be taxed at the rate specified in Article 17 of Income Tax Law. Furthermore, they are no longer permitted to use 0.5% final income tax rate.

How to Pay 0.5% Final Income Tax?

Final income tax calculation according to Government Regulation Number 55 of 2022 is calculated every tax period. In line with these provisions, tax payable is also paid by taxpayer every tax period. For taxpayers who transact with the withholding or collecting party, tax payable will be deducted/collected by tax withholder or collector for each transaction. In addition, taxpayers who transact with withholders or collectors must apply for a certificate to Director General of Taxes. Furthermore, procedure for depositing, deducting or collecting tax is regulated in a Minister of Finance Regulation.

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