Corporations Prepare to Recalculate Payroll Following Adjustments to PTKP

The Government is considering adjustments to the Non-Taxable Income Threshold (Penghasilan Tidak Kena Pajak – “PTKP”) and an expansion of the Article 21 Income Tax (Pajak Penghasilan – “PPh”) borne by the Government (Ditanggung Pemerintah – “DTP”) incentive. These measures are expected to strengthen household purchasing power, but may also reduce state revenue and affect employers’ tax withholding obligations (withholding tax agent).

Deputy Minister of Finance Juda Agung stated that the Government is still seeking an optimal balance between the benefits of increasing the PTKP for household purchasing power and the potential loss of PPh revenue. “Regarding the increase in the PTKP, we are still conducting an in-depth review, as it could boost purchasing power but, at the same time, could also result in a loss of income tax revenue. We are therefore seeking to determine the optimal balance,” Juda said.

The proposed adjustment to the PTKP refers to Article 7 paragraph (3) of Law No. 7 of 1983 on Income Tax, as lastly amended by Law No. 10 of 1994 (collectively referred to as “PPh Law”), as amended by Law on the Harmonization of Tax Regulations (“HPP Law”).

Currently, the annual PTKP threshold for a single individual taxpayer with no dependents (“TK/0”) stands at Rp54 million, unchanged since 2016. An adjustment to this threshold, which would take inflation into account, is viewed as a long-overdue measure to preserve the real value of the tax law after a decade without revision. Accordingly, corporate payroll teams should prepare to adapt their internal tax reporting systems to accommodate any changes.