Income Tax Treatment on Natura and Benefit in Work Relations and/or Services Provision

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Authors

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Overview

After the enforcement of Law No. 7 of 2021 regarding Harmonization of Tax Regulations (known as “HPP Law”) several tax provisions were changed, including regarding income tax. In this case, UU HPP stipulates natura ¹ and benefit ² as tax objects. Further, through the enactment of the Ministry of Finance (MOF) Regulation No. 66 of 2023 regarding Income Tax Treatment for Reimbursement or Compensation in Relation to Work or Services Received or Obtained in the form of Natura and/or Benefit (“MOF Reg 66/2023”), the MOF regulates further provisions, as an implementing regulation on natura and benefit income tax.

This ARMA update will discuss the main point on MOF Reg 66/2023; especially regarding the general matter, exemption, and implementation of income tax of natura and benefit; which applied in work relation and service provision.

Natura and Benefit as Tax Object

What is ‘natura’ and ‘benefit’ as tax object? In simple term, it refers to taxes imposed on goods and/or facilities provided by the company or employer to employees, which are not in the form of money.

In this matter, through PMK 66/2023, MOF regulates two main points:

1. reimbursement or compensation in the form of natura and/or benefit in relation to work or services may be deducted from the gross income in order to determine taxable income by the employer or the provider of compensation or reimbursement; ³ and

2. reimbursement or compensation in relation to work or services received in the form of natura and/or benefit shall be income which becomes the object of income tax. ⁴

Exemption

For compensation in form of natura and benefit received, the government determines several compensations that are exempted to be deemed as tax objects, such as:

Apart from the above list, the MOF also stipulates for natura and benefit which (i) sourced from the state budget (APBN) or regional budget (APBD); (ii) provided in certain areas that do not yet have adequate economic facilities and infrastructure and public transportation; or (iii) received in 2022, are also exempted to be deemed as tax objects. ⁵

Implementation

Income in the form of reimbursement or compensation in the form of natura and/or benefit received or obtained in relation to the work or service shall be assessed based on the provisions of: ⁶

1. market value for reimbursements or compensation in the form of natura; and/or
2. the amount of costs incurred or should have been incurred by the provider of reimbursement or compensation in the form of benefit.

In the event that there are more than 1 (one) recipient of such natura and/or benefit, the calculation shall be conducted in pro-rate basis. ⁷

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1. Based on elucidation Article 3 (1) of HPP Law, “natura” refers to compensation in kind other than money.↩

2. Based on elucidation Article 3 (1) of HPP Law, “benefit” refers to compensation in the form of the right to use a facility and/or service.↩

3. Article 2 of MOF Reg 66/2023↩

4. Article 3 of MOF Reg 66/2023↩

5. Article 4 j.o. Article 9 of MOF Reg 66/2023↩

6. Article 22 (1) of MOF Reg 66/2023↩

7. Article 22 (4) of MOF Reg 66/2023↩

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

Table of Contents

1. Overview
2. Natura and Benefit as Tax Object
3. Exemption
4. Implementation

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