JAKARTA – Indonesia is undergoing a major tax reform that aims to harmonize various tax regulations, simplify tax administration, and increase tax compliance. One of the key changes is the introduction of new income tax rates for individual taxpayers, which took effect from 1 January 2024.

The new income tax rates are based on a progressive scale that ranges from 0% to 34%, depending on the monthly gross income of the individual. The government has also increased the lowest tax bracket cap from IDR 50 million (US$3,197) to IDR 60 million (US$3,836) per year, meaning that more low-income earners will be exempt from income tax. Additionally, a new 35% tax bracket has been added for individuals earning more than IDR 5 billion (US$319,700) per year.

The new income tax rates are expected to have a significant impact on various groups of taxpayers, such as employees, professionals, entrepreneurs, and investors. For employees, the new rates will affect the amount of withholding tax deducted from their salaries by their employers. For professionals and entrepreneurs, the new rates will affect the amount of income tax they have to pay on their business or service income. For investors, the new rates will affect the amount of income tax they have to pay on their dividends, interest, royalties, and capital gains.

The new income tax rates are also likely to affect foreign investors who have business activities or investments in Indonesia. Foreign investors may benefit from lower income tax rates if they qualify for tax treaty benefits or if they invest in certain sectors or regions that are eligible for tax incentives. However, foreign investors may also face higher income tax rates if they do not qualify for any tax relief or if they invest in sectors or regions that are subject to higher taxes.

The new income tax regulations are part of the government’s efforts to increase tax revenue and reduce the budget deficit amid the COVID-19 pandemic. The government hopes that the new regulations will make the tax system more equitable, efficient, and competitive, and will encourage more taxpayers to comply with their tax obligations.

Taxpayers should review their income sources and tax positions to assess the impact of the new regulations on their tax liabilities and cash flows. Taxpayers should also consult with their tax advisors to plan ahead and optimize their tax strategies in light of the new regulations. (zai)