Reviewing the Provisions for the Imposition of Final Income Tax

The calculation of Income Tax (PPh) in Indonesia currently applies 2 (two) ways in calculating PPh, namely from net income multiplied by the general rate based on Article 17 paragraph (1) of the PPh Law and from gross income multiplied by a special rate and is final based on a Government Regulation separately according to the delegation of Article 4 paragraph (2) of the Income Tax Law. It is called Final PPh because after it is paid off, either through deductions by the counterparty or by the taxpayer himself, the said income is no longer combined with other incomes subject to PPh at the general rate at the end of the tax year at the time of reporting the Annual SPT. Final PPh is applied to several types of income from certain businesses including, among others, real estate development companies), rental of land and buildings ( property ), and construction services ( construction ). In addition, Final Income Tax is also applied to Taxpayers who receive or earn income with a gross turnover not exceeding Rp. 4.8 billion in 1 (one) tax year. The Government’s consideration in the imposition of Final PPh is generally for ease and simplicity in calculating taxes.

Final PPh does not reflect justice

According to John Stuart Mill (1930), the ability to pay principle is the most realistic formulation of justice in taxation. The ability to pay is reflected based on taxation of net income, namely gross income after deducting the costs incurred in obtaining the income. By making gross income the basis for imposing Final Income Tax, regardless of the size of the net income, even in conditions of minus net income or loss, Taxpayers still have to pay taxes. This condition is certainly not fair. For example, for companies whose income is affected by Final PPh and is affected by Covid-19 resulting in the potential to experience net losses in 2020, these companies are still required to pay PPh imposed on each sale or gross income.

With the imposition of Final PPh from gross income, Taxpayers who can generate a large percentage of profit or net income will benefit from the savings in paying PPh compared to Taxpayers who are only able to generate a small percentage of net profit, especially for loss-making companies that should not be required to pay taxes. This deviates from the principle of horizontal equity which requires that taxpayers who have the same economic ability pay taxes in the same amount and do not comply with the principle of vertical equity which requires tax payments to increase as the number of taxes increases. income (Musgrave and Musgrave, 1989).

Leasing Discrimination Against Certain Types of Income

The regulation of Final Income Tax which is based on gross income and is subject to a separate tax rate different from the general rate is contrary to the principle of equality put forward by Adam Smith and violates the principle of non-discrimination in law (Santoso Brotodihardjo, 1982). This is also a deviation from the principle of justice that income should be taxed in the same way regardless of the source, type, and method of obtaining it (John G.Head, et al, 2014).

The imposition of the Final Income Tax will result in the Taxpayer losing some of the tax rights granted by the PPh Law. For example, an individual taxpayer loses the right to deduct non-taxable income (PTKP). Likewise, corporate taxpayers and individual taxpayers who have met the criteria for keeping books of account lose the right to compensate for losses for 5 (five) consecutive years starting from the following tax year. In addition, the company is listed on the stock exchange ( go public ) but all of its income is subject to Final Income Tax which trades shares of at least 40%

of the total paid-in capital and fulfills, other requirements do not receive a tariff reduction facility lower than the general rate provided by law. This is certainly a discriminatory treatment that causes injustice among listed companies that are eligible for a reduced rate. Furthermore, there is discrimination in treatment where compensation to employees in the form of in-kind and/or enjoyment provided by the company which is subject to final tax is an object of income tax for employees who receive it. At the same time, this does not apply to employees of companies in various industries whose income is not subject to Final Income Tax…

Discrimination also occurs about the government’s policy of lowering Corporate Income Tax from 25% to 22% for the 2020 and 2021 tax years and 20% in 2020. The reduction in rates is not enjoyed by companies subject to Final Income Tax. Likewise, several PPh facilities in the context of handling Covid-19, including the buyback of shares traded on the Indonesia Stock Exchange related to the fulfillment of requirements to obtain a lower 3% corporate income tax rate, do not apply and cannot be used by go-ahead companies. a public whose income is subject to Final Income Tax.

Provisions for the Imposition of Final Income Tax Need to be Revisited

The government needs to review the imposition of Final PPh based on gross income at a different rate to become PPh based on net income at a general rate, especially for Taxpayers who, based on tax provisions, are required to keep books regardless of the business sector. With the company being able and obligated to keep books of account, income tax should be calculated from net income, no longer from gross income.

Government Regulation Number 23 of 2018 still applies the imposition of Final PPh for businesses with gross turnover not exceeding Rp. 4.8 billion in 1 (one) tax year but limited to several tax years reflects the government’s awareness of the reality that not all Individual Taxpayers can maintain books of account that produce financial statements in the form of balance sheets and profit/loss calculations. This policy can be considered appropriate for individual taxpayers who are not required to book books because they are given a kind of grace period for them to learn to understand bookkeeping. However, the government and accounting professional organizations need to think of simple accounting guidelines or standards so that individual taxpayers are not too difficult to fulfill their bookkeeping obligations.

Finally, the government should no longer impose Final Income Tax for Corporate Taxpayers who, based on tax provisions, have been required to keep books of account regardless of gross turnover and regardless of type and business sector.

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