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Indonesia: New policy for Article 21 withholding tax

Regulation No. 58 year 2023 introduced an “average effective rate” for Article 21 withholding tax rate

January 31, 2024

Regulation No. 58 year 2023 (dated 27 December 2023) introduced an “average effective rate” or “tarif efektif rata-rata (TER)” for the Article 21 withholding tax rate on income related to employment, services, or activities received by individuals.

Minister of Finance regulation No. 168 year 2023 (dated 29 December 2023) provided implementing guidelines for the regulations effective 1 January 2024.

Under the new rules, the Article 21 withholding tax calculation applies a monthly TER from January to November, and the annual calculation method for December remains the same as in previous regulations. The tax payable for December will be based on the recalculation of annual tax payable deducted by the total tax that has been withheld from January through November. The implementation of TER imposes no additional tax burden on employees, as the annual Article 21 withholding tax calculation applies the same tax rate as in previous regulations.

KPMG observation

There is a possibility of significant underpayment in December which needs to be communicated to employees, especially if the gross method for the Article 21 withholding tax calculation is used. In other cases, Article 21 withholding tax might be over-withheld for employees who do not work for the full year or receive significant compensation (such as bonus) in the middle of the year. This must be refunded to these employees.

Read a January 2024 report [PDF 819 KB] prepared by the KPMG member firm in Indonesia

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