Enjoyment of the Convenience Tax

Law Number 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP) regulates many changes to tax regulations. One of the highlights is the imposition of taxes on in-kind and/or enjoyment. Previously, grants in kind and/or enjoyment were regulated in Article 4 paragraph (1) letter a and Article 4 paragraph (3) letter d of Law Number 36 of 2008 concerning the Fourth Amendment to Law Number 7 of 1983 concerning Income Tax (Law No. 7/1983 on Income Tax). PPh).

In the Income Tax Law, natura and/or enjoyment are excluded from tax objects except those granted by non-taxpayers, taxpayers who are subject to final tax or taxpayers who use the special calculation norms (deemed profit) as referred to in Article 15. So in kind and/or or enjoyment provided by taxpayers other than those previously mentioned are included in the exemption of tax objects.

Two provisions in the Income Tax Law were finally amended. In the HPP Law, nature and/or enjoyment are confirmed as being included in the tax object.

According to the OECD definition, in kind and/or enjoyment are also known as benefits in kind, which is a form of compensation received in a form other than cash and related to work relationships. The explanation of Article 4 paragraph (3) letter 3 of the Income Tax Law states, in kind is given in the form of goods such as rice, sugar, and others. While enjoyment is given in the form of facilities such as cars, houses, and medical facilities.

Tax Planning Using Nature and/or Enjoyment

Human Resources (HR) or labor is the most important production factor for the company. Companies that can provide large rewards are certainly more in demand by workers. It is not uncommon for companies to give appreciation in the form of fringe benefits or non-wage compensation with the aim of boosting productivity and motivating employees as the company’s most important asset.

Prior to the issuance of the HPP Law, grants in kind and/or enjoyment were costs that should not be deducted from gross income for companies and were not objects of income tax for employees who received them. So that the provision of in-kind and/or enjoyment cannot be charged as a cost to calculate taxable income for the company, but also not income that can be subject to Personal Income Tax (PPh OP) for employees who receive it.

The current corporate income tax rate is 22%, while the OP income tax rate ranges from 5% to a maximum of 30%. There is a difference in OP PPh rates up to 8% higher than Corporate Income Tax. It should be noted that not a few top-level employees who are subject to PPh OP rates of up to a layer of 30% get in-kind and/or enjoyment from the company where they work. This is often used as a company’s tax planning to better pay corporate taxes at a lower rate than having to cut PPh OP at a higher rate. Tax Planning by shifting the company’s profits from PPh OP to Corporate Income Tax is widely practiced by companies in order to obtain greater tax savings.

Aiming for Justice

The thing that needs to be considered regarding the imposition of taxes on in-kind and/or enjoyment is the amendment of Article 4 paragraph (3) of the HPP Law which regulates the exemption of in-kind and/or enjoyment from the imposition of taxes. It is stated that natura and/or enjoyment that are excluded from the object of taxation are the provision of food/drink for all employees, in kind and/or enjoyment in certain areas, in kind and/or enjoyment due to the necessity of work, in kind and/or enjoyment sourced from the Revenue and Expenditure Budget. State Expenditure (APBN) or Regional Revenue and Expenditure Budget (APBD) and in kind and/or enjoyment with certain types and limitations.

So with the sound of Article 4 paragraph (3), it is not true that the tax authorities target all office facilities provided by the company, especially to lower level employees who really need facilities from the office to support their work.

The Minister of Finance (Menkeu) of the Republic of Indonesia Sri Mulyani Indrawati at the Kick Off Socialization of the HPP Law (Friday, 19/11) emphasized that it is not true that laptops and cellphones received by employees as facilities for their work are also objects of in-kind taxes and/or enjoyment. The object is fringe benefits for several large professional segments.

In point 3 of Article 4 paragraph (3) of the HPP Law it is also clear that facilities that are mandatory for work will not be taxed. Also, in point 5 it is also stated that there are certain types and limits for the imposition of taxes on this kind of benefit and/or enjoyment. This kind of tax and/or enjoyment will be regulated in more detail by a Government Regulation.

The Income Tax Law defines income as additional economic capacity for the recipient. Giving in kind and/or enjoyment with certain types and limits is clearly an additional economic capability for the recipient but has so far been exempt from taxation. This kind of tax and/or enjoyment is imposed to achieve fairness of tax imposition, both cash and non-cash. It is unfair if lower-level workers are taxed on their entire income but not all upper-level workers’ income is taxed due to in-kind and/or benefits provided.

So it is clear that the imposition of taxes on in-kind and/or enjoyment is enforced to minimize tax avoidance practices and also to achieve tax imposition justice.