Harmonized Tax Law Amends Provisions on Income Taxes

Law No. 7 of 2021 dated October 29, 2021 on the Harmonization of Taxation Regulations (“Law 7/2021”) amends several existing regulations on the taxation law and introduces several new regulations. Law 7/2021 amends, among others, Law No. 7 of 1983 dated December 31, 1983 on Income Taxes as amended several times, lastly by Law No. 11 of 2020 dated November 2, 2020 on Job Creation (collectively, the “Income Tax Law”).  This Newsflash specifically discusses the changes of the Income Tax Law under Law 7/2021.

For your reference, our other Newsflash relating to Law 7/2021, specifically on the changes of  General Taxation Provisions may be accessed, and changes to Excise Law may be accessed here.

Below, we set out the summary of the important provisions of Law 7/2021 relating to the Income Tax Law.

  • Individual Income Taxes

Law 7/2021 introduces a new individual income tax rate whereby individual taxpayers with a taxable income of more than Rp5 billion shall be subject to 35% income tax. For ease of reference, below is the comparison of individual income tax rates governed under the Income Tax Law and Law 7/2021:

Rate The Income Tax Law Law 7/2021
5% Up to Rp50 million Up to Rp60 million
15% More than Rp50 million but not exceeding Rp250 million More than Rp60 million but not exceeding Rp250 million
25% More than Rp250 million but not exceeding Rp500 million More than Rp250 million but not exceeding Rp500 million
30% More than Rp500 million More than Rp500 million but not exceeding Rp5 billion
35% N/A More than Rp5 billion

Law 7/2021 stipulates that the new provisions on individual income tax rates above shall be effective from the 2022 fiscal/tax year.

  • Corporate Income Taxes

Under Law 7/2021, a new rate for corporate income tax is also introduced. Previously, the Income Tax Law provided that the rate of corporate income tax would be 20%. Starting from the 2022 fiscal/tax year, Law 7/2021 provides that the corporate income tax rate is set at 22%. This new rate is also applicable to a Permanent Establishment (in Indonesian, Bentuk Usaha Tetap or BUT).

Law 7/2021 also reduce the applicable corporate income tax reduction to be 3% instead of 5% for public companies that meet certain criteria.

  • Income Tax for Benefits-in-Kind

Under the Income Tax Law, benefits-in-kind (“BIKs”) are non-tax deductible for employers and for employees receiving the BIKs. The examples of BIKs that are provided by employers to employees include provision of cars, housing, education, meals, and other BIKs necessary to carry out employee’s works.

Law 7/2021 stipulates that BIKs may be tax deductible for employers and taxable for employees. Consequently, such requirement would shift the tax obligation from employers to employees receiving BIKs. Note that Law 7/2021 exempts the following BIKs from being taxable: (i) foods and beverages to employees, (ii) BIKs in certain areas, (iii) BIKs that must be provided for work-related matters (e.g., safety work equipment, uniforms), (iv) BIKs funded by state budget, regional state budget, or village budget, or (v) certain BIKs with certain limitations.



December 15, 2021

Please contact Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com), or Thomas P. Wijaya (twijaya@aksetlaw.com) for further information.



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