Introducing the New Income Tax Law (First Part) (新所得税法のご紹介)

income-taxFollowing to the amendment of the General Tax Provisions and Procedure Law, the Income Tax Law is eventually amended and the amendment shall also be effective starting from year 2009. This new tax law is Law Number 36 Year 2008. Let see what are new inside this latest Law.

Similar with the Law No. 28 Year 2007 which presents a large number of changes to the General Tax Provisions and Procedures, the Law No. 36 Year 2008 also contains numerous changes significant to the Income Tax regulations. This article will give you a description by order based on the sections of the Law.

Tax Subject


Changes in the context of tax subject are mainly dominated by Permanent Establishment (PE) issue. The first change is that, PE now is stated explicitly as tax subject on which the tax treatment is similar with Corporate Tax Subject. In the current prevailing Income Tax Law (Law Number 17 Year 2000), the status is only stated implicitly, by stipulating that the tax tariff imposed to a PE is similar with the tax tariff of Corporate Taxpayers.

In this new Income Tax Law, there are additional types of PE: 1) warehouse; 2) space for promotion and sales; and 3) computer, electronic agency, or automatic equipment owned, rented, or used by electronic transaction caretaker for running the business activities via internet. The categorization of warehouse and promotional space as PE is appeared to be an effort to synchronize our country’s income tax regulations with most of the current tax treaties owned. In most of the tax treaties of Indonesia and the contracting countries, warehouses and any facilities merely used to display the products are categorized as PE.

What is the most surprising among the three types above is the third one. It is the fact that most of the tax treaties Indonesia entered into do not recognize such type of PE. However, due to the booming of e-commerce transactions, this categorization is quite understandable. What is hard to imagine now is how to implement the taxation on this type of PE.

In addition to PE status, now not all work fields of mining exploration drilling are categorized as PE. The mining work fields that are still categorized as PE are only natural oil and gas. This change clearly reduces our country’s right to tax Non Resident Taxpayers having mining work fields other than natural oil and gas in Indonesia, particularly those as residents of the countries having no tax treaties with Indonesia.

Another key issue of tax subject is regarding bodies not categorized as Resident Tax Subject. In substance, both the current prevailing tax regulations and the upcoming ones regulate the criteria of bodies not categorized as Resident Tax Subjects. The difference is that the current tax law only mentions such criteria in its elucidation, whereas the upcoming law states this criterion in its main articles.

Tax Object


A quick look into the above table gives you a clear picture that the Government has expanded the tax imposition basis by adding other types of income into the category of Tax Object. Hence, by carefully observing the category of income not subject to tax per the current tax regulation (Law No. 17 Year 2000) and the Bank of Indonesia Act, basically the new tax objects are only surplus of the Bank of Indonesia and interest from bond received by mutual fund companies.

Speaking of the Bank of Indonesia’s surplus, the current Law, which soon will be ineffective in 2009, actually does not mention it as income not subject to tax (Article 4 paragraph (3) of Law No. 17 Year 2000). However, according to the Article 62 of Law Number 23 Year 1999 on Bank of Indonesia, the suplus is not subject to Income Tax.

Compared to the above new tax object, the current tax law stipulates that interest from bond received by mutual fund companies is exempted from Income Tax imposition. This exemption is valid only for the first 5 (five) years since the establishment/approval issuance of these companies. Taking a further flashback, when Income Tax Law Year 1994 still prevailed, the Government did not limit the time of such exemption. According to some tax analysts, the categorization of this new tax object is mainly based on the consideration that most mutual fund companies have exceeded their growing phases.

In the meantime, particularly for Non Resident Taxpayers, the new tax objects are other hedge transactions and gain from payable write off. In Law No.17 year 2000, these types of transaction have not been categorized as withholding income tax article 26 objects, though since a long time ago such transactions have been subject to tax for Resident Taxpayers.

Actually, other types of Income mentioned in the above table has already been categorized as type of income subject to tax based on the current Income Tax Law and regulations. The new Income Tax regulation only affirms the previous provisions.

Non Tax Object


On one side, the Government has made additional types of income as new tax objects, and on the other side, the Government also adds the category of income as new non tax objects. In the above table, we can see the indication that the Government has improved its concerns to social, educational and certain field of industries which need its support for their growth.

Regarding the social sector, the Government excludes certain donation and endowment from Income Tax imposition. What meant by certain donations are those categorized as religious duties related to the religions recognized in Indonesia. However, there are requirements needed to be fulfilled. The donations should be received by religious bodies established/approved by the Government and should be received by the appropriate persons to which the donations are entitled.

The other new non tax objects are endowments paid by the Social Security Coordinator Body to certain taxpayers. Who meets the criteria of certain taxpayers? The answer is still a mystery until a regulation stipulating such technical matters is issued by the Minister of Finance.

For the educational sector, the scholarship recipients can now be relieved since scholarship will be categorized as non tax object. Hence, there are matters still needed to be further clarified, those are regarding the nominal limit of the scholarship. Up to this moment, we have not found out whether the tax exemption is applied to any amount of scholarship received or only to certain limited amounts? We are also waiting for further regulations issued by the Minister of Finance upon the mechanism.

The non profit organizations/bodies engaged in educational sector including those in research and development which have been registered at the relevant institution may also be pleased about the tax exemption on the surplus received. To be entitled to it, the surplus should be reinvested in form of facilities and supporting facilities for educational and/or research and development activities within a maximum of 4 (four) years since receiving the surplus. This provision is almost similar with the provision in the Decree of Director General of Taxes Number KEP-87/PJ./1995 concerning Recognition of Income and Expense on Building and Infrastructure Development Fund for Education for Foundation/Similar Organization engaged in educational sector.

For the individual entrepreneurs engaged in micro and small business industry, the Government tends to pay more concern for the growth of this sector by categorizing granted assets received as non tax objects. Further, as to affirm the Decree of Director General of Taxes Number 147/PJ/2003 concerning Income Tax on Income Received or Acquired by KIK-EBA and Their Investors, part of revenue received/acquired by unit holder of collective investment participation contract is also exempted from Income Tax imposition.

The conclusion of the changes in the provisions regarding tax subject, tax object and non tax objects is that all of them are basically to affirm the preceding ones. In addition, these changes require further tax regulations stipulating the technical matters in form of Government Regulations or Finance Minister Decrees.

What abut the changes in the provisions of the New Income Tax Law regarding other matters such as expenses, non deductible expenses, etc? They will be presented in the subsequent part of this Article.

Additional Tax Objects-Non
Tax Objects

: 課税・非課税対象の追加



Non Tax Objects








Gain from reorganization in whatever name and form.

4 paragraph (1) letter d number 3


Religious donation which is mandatory for the believers of religions recognized in Indonesia, received by religious institution established/approved by the Government and received by the rightful recipient..

4 paragraph (3) letter a number 1


Gain from sales or transfer of partial/entire mining right, funding or share warrant, in mining companies.

4 paragraph (1) letter d number 5


Granted asset received by individuals conducting micro and small business.

4 paragraph (3) letter a number 2


Additional payment of tax refund.

4 paragraph (1) letter e


Part of revenue received/acquired by unit holder of collective investment participation contract.

4 paragraph (3) letter


Income from syariah based business.

4 paragraph (1) letter q


Scholarship fulfilling certain requirement.

4 paragraph (3) letter l


Interest income as meant in the General Tax Provisions and Procedure.

4 paragraph (1) letter r


Surplus received/acquired by bodies/ institutions engaged in educational field and/or research and development field, already registered in the relevant institution, which is reinvested in form of facilities and supporting facilities of the educational activities and/or research and development, within a maximum of 4 years since the surplus is received/acquired.

4 paragraph (3) letter m


Surplus of the Bank of Indonesia.

4 paragraph (1) letter s


Donation/endowment paid by Social Security Coordinating Body to certain taxpayers.

4 paragraph (3) letter n


Interest from bond received by mutual fund companies.

23 paragraph (4) letter d and Article 4 paragraph (3) letter j


Other hedge transactions.

Article 26 paragraph (1) letter g


Gain from payable write off.

26 paragraph (1) letter h



  1. Thank you, nice article… , especially it is written in English

  2. New regulation hah? will it be better?

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