New Regulations on Tax for Zakat, Donations, and Grants

The Ministry of Finance (“Kemenkeu”) is finalizing a Draft Regulation of the Minister of Finance (“Permenkeu”) on the Treatment of Aid or Donations, including Zakat or Mandatory Religious Donations, as well as donated assets under the Income Tax (Pajak Penghasilan – “PPh”) (“RPermenkeu”). This new regulation will replace the previous provisions stipulated under Regulation of the Minister of Finance No. 254/PMK.03/2010 of 2010 (“Permenkeu 254/2010”) and Regulation of the Minister of Finance No. 76/PMK.03/2011 of 2011 (“Permenkeu 76/2011”) which were considered insufficient to fully accommodate the tax treatment of aid, donations, and donated assets.

“This RPermenkeu aims to regulate zakat or mandatory religious donations, as well as donations/expenses for social infrastructure development, so that they may be deducted from the gross income of the giver while also being exempted from PPh for the recipient,” said Yon Arsal, the Expert Staff at the Minister of Finance for Tax Compliance, to Hukumonline.

In general, the RPermenkeu maintains the principle that donated assets, aid, or donations cannot be deducted from gross income when determining the amount of Taxable Income of the giving Taxpayer (Wajib Pajak – “WP”). However, two main exemptions are retained and further strengthened.

First, donations made for national disaster relief, research and development, educational facilities, sports development, and social infrastructure development expenses may be deducted. Second, zakat paid to officially recognized government zakat amil agencies/institutions, or mandatory religious donations for adherents of religions recognized by the government, may also be deducted from gross income.

“It has already entered the harmonization process at the Directorate General of Laws and Regulations (Direktorat Jenderal Peraturan Perundang-Undangan – “DJPP”),” he added.