The government has once again extended income tax incentives in Indonesia through Minister of Finance Regulation Number 105 of 2025. Under this policy, Article 21 Income Tax Borne by the Government, known as PPh 21 DTP, will apply for the January to December 2026 tax period. The regulation has been effective since December 31, 2025. What does this decision actually mean, and will it have a significant impact on Indonesia?
In the considerations section of the regulation, the government states that the measure aims to maintain people’s purchasing power while supporting economic and social stabilization throughout 2026. The policy is part of the broader national economic stimulus package.
The extension specifically targets selected sectors considered crucial for employment absorption and industrial stability.
Income Tax Incentives in Indonesia as Support for Priority Sectors
Income tax incentives in Indonesia are granted to workers in five business sectors: footwear, textiles and garments, furniture, leather and leather goods, and tourism. A total of 133 business classification codes fall within the scope of this policy based on the Directorate General of Taxes’ administrative database.
The selection highlights the government’s focus on labor-intensive industries. When these sectors remain stable, the impact extends to household consumption levels and overall domestic economic activity.
In my view, the policy is relatively targeted. Instead of expanding incentives across all sectors, the government limits them to industries that genuinely require support to maintain cost balance and workers’ purchasing power. With PPh 21 covered by the government, employees’ net income remains intact without placing additional direct burdens on companies.
This approach demonstrates that fiscal policy is being used as a balancing tool, not merely as a revenue instrument.
Income Tax Incentives in Indonesia and Eligibility Criteria
Although the objective is clear, the implementation of income tax incentives in Indonesia involves detailed technical requirements. Eligible recipients include certain Permanent Employees and certain Non-Permanent Employees working in the designated sectors.
The maximum gross income covered by the government is Rp 10 million per month for fixed and regular income. For Non-Permanent Employees who already have a Taxpayer Identification Number, additional thresholds apply, such as an average daily wage not exceeding Rp 500,000 or a maximum of Rp 10 million per month under a monthly payment scheme.
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Fixed and regular income refers to salary and fixed allowances paid monthly according to company regulations or employment contracts. Employees benefiting from this facility are not allowed to receive other PPh 21 DTP incentives under existing tax regulations.
From my perspective, these technical details often become the critical point in policy implementation. Without proper understanding, the risk of misclassification or reporting errors may arise. Administrative accuracy is therefore essential.
Employer Reporting Obligations
The regulation also outlines administrative responsibilities for employers. The incentive must be provided in cash at the time income is paid. Withholding slips must still be issued, even though the PPh 21 is borne by the government and is not treated as taxable income for employees.
Employers are required to report the utilization of the incentive for each tax period. The Director General of Taxes will then conduct supervision through guidance, examination, and compliance testing of taxpayers using the facility.
In my view, this structure reflects policy balance. The government offers fiscal relief while maintaining strict reporting and oversight standards. This ensures the incentive functions effectively without weakening tax system accountability.
For business actors, understanding income tax incentives in Indonesia is not just about knowing the policy exists. Proper implementation, accurate calculation, and compliant reporting determine whether the benefits can truly be optimized.
Bizindo can assist companies and foreign investors with tax compliance management, PPh 21 calculation and reporting, and payroll administration in accordance with the latest regulations. With proper guidance, businesses can maximize income tax incentives in Indonesia while ensuring full compliance with applicable tax laws.
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