Indonesia | Employment Tax | Changes to Benefit in Kind Tax rates

24 August 2023

Employment Tax

Indonesia | Changes to Benefit in Kind Tax rates

Impact: High

Summary

A new regulation (PMK-66/2023) was issued in July 2023 by the Indonesian tax authorities in relation to the income tax treatment of reimbursement or compensation in connection with employment or services in kind and/or benefits (BIK).

The regulation is intended to encourage employers to improve their employee’s welfare by providing various benefits, which the employer can consider as a deductible. The Regulation also provides details of BIKs which are exempt from taxable income, and how other BIKs are calculated.

PMK-66/2023 revokes PMK-167//2018 which stated that the provision of food and drinks for all employees as well as reimbursement, or compensation in the form of BIKs in certain areas and related to work, may be deducted from the gross income of employers.

The Detail

(1) Benefits-in-kind which qualify as deductible expenses?

Deductible BIKs are BIKs that represents reimbursement/compensation related to:

• employment relationships between employers and employees;
• service transactions between taxpayers (e.g. compensation that is typically paid by the employer for the employee’s benefit).

In order to qualify as a deductible expense:

• BIKs that have a useful life of less than one year are expensed in the year where the expense is incurred.
• BIKs that have a useful life of more than one year are expensed through depreciation or amortisation.

(2) Benefit-in-kind Limits

Following the newly introduced changes, the following benefits can be provided by employers to their employees free of income tax, subject to the limits outlined below:

	BIK Item	Limit Applicable
1.	Gifts to employees for religious holidays (e.g. Idul Fitri, Christmas etc)	No limit
2.	Gifts to employees other than for religious holidays	IDR 3 million per employee per year
3.	Work equipment necessary to support the employee’s duties (e.g. laptop, mobile phone, internet)	No limit
4.	Health and medical services in respect of work accidents	No limit
5.	Sports facilities (excluding golf, horse racing, power boating, gliding and car related sports)	IDR 1.5 million per employee per year
6.	Communal Housing facilities	No limit
7.	Non-communal housing (e.g. apartment / house rental)	IDR 2 million per employee per year
8.	Provision of a transportation vehicle	No limit, provided: 1)    The employee is not a shareholder of the business and; 2)    The employee’s gross monthly income is not greater than IDR 100 million in average.
9.	Employer pension contribution (the benefit must be paid to the pension fund supervised by the Indonesian Financial Services Authority (OJK).	No limit provided accepted by employee
10.	Religious facilities (e.g. provision of a prayer room, mosque, chapel etc)	No limit
12.	Food / drink provided to employees at the workplace (provided open to all employees)	No limit
13.	Meal coupons for employees outside of the workplace	IDR 2 million per employee per month
14.	Benefits related to safety / health in the workplace (e.g. uniforms, shuttle to / from work, medicine / vaccines)	No limit as this benefit is required by law
15	Benefits provided in certain areas as regulated under Tax Regulation in Indonesia	No limit

Note: any BIKs provided after 1 July 2023 which exceed the above limits will be taxable and the employer is required to withhold the tax due. The employees must also report the BIKs in their Annual Income Tax Return.

(3) Benefits-in-kind provided in 2022

BIKs provided by employers in 2022 are considered exempt from income tax.

(4) Benefits-in-kind provided between January to June 2023

BIKs provided to employees between January– June 2023 are subject to income tax. However, the tax due on receipt of these benefits must be calculated and paid by the employee via their 2023 Annual Income Tax Return.

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