When Employee Benefits Are Not Automatically Subject to Income Tax Article 21

Does every expense recorded as an employee cost automatically constitute an object of Article 21 Income Tax? This question lay at the heart of the tax dispute between PT TNU and the Directorate General of Taxes (DGT). Through the issuance of an Underpayment Tax Assessment Letter (SKPKB) for Article 21 Income Tax for the December 2020 Tax Period, the DGT determined a Tax Base of IDR 4,720,926,559.00 and Article 21 Income Tax payable of IDR 393,030,885.00. After deducting tax credits amounting to IDR 232,220,414.00, the DGT concluded that there remained an underpayment of IDR 160,810,471.00 and imposed administrative interest sanctions of IDR 45,554,774.00, resulting in a total tax payable of IDR 206,365,245.00.

Disagreeing with the assessment, PT TNU filed an objection, asserting that the Article 21 Income Tax payable should be nil. PT TNU argued that the DGT’s corrections did not reflect the actual circumstances, particularly because the DGT had included certain employee-related expenses that did not entirely constitute income received or accrued by the employees. The objection was rejected by the DGT, prompting PT TNU to pursue further legal remedies by filing an appeal with the Tax Court.

During the appeal proceedings, PT TNU explained that the correction to the Article 21 Income Tax Base originated from several cost components, namely salary and wages amounting to IDR 3,974,172,634.00, salary tax allowance expense of IDR 249,771,385.00, overtime expense of IDR 8,590,000.00, religious holiday allowance (THR) expense of IDR 239,846,334.00, and employee benefit expense of IDR 248,546,206.00. PT TNU emphasized that the employee benefit expense in question specifically represented a provision for employee benefits in accordance with PSAK 24, which, in the relevant tax year, had not yet been realized or paid to the employees. Consequently, such provision could not be treated as income received or accrued by the employees and therefore should not be regarded as an object of Article 21 Income Tax.

In addition to disputing the basis of the correction, PT TNU also challenged the recognition of Article 21 Income Tax credits. According to the Taxpayer, the Article 21 Income Tax that had been paid and supported by Tax Payment Slips (SSP) amounted to IDR 257,958,018.00, which exceeded the tax credit recognized by the DGT in the amount of IDR 232,220,414.00. This discrepancy, the Taxpayer argued, directly affected the determination of the underpayment and did not reflect the factual conditions.

In its response, the DGT maintained its corrections, asserting that all expenses related to employee income and recorded in the profit and loss statement constituted objects of Article 21 Income Tax, including employee benefit expenses that were still recorded as provisions. The DGT further stated that the calculation of tax credits had been carried out in accordance with the data and audit findings available to the tax authority.

After examining the arguments of both parties, the submitted evidence, and the prevailing tax laws and regulations, the Panel of Judges of the Tax Court held that a provision for employee benefits whose payment has not yet been realized cannot be regarded as income received or accrued by the employees. The Panel emphasized that the timing of Article 21 Income Tax liability depends on the existence of actual income, rather than merely on the recognition of expenses for accounting purposes. Based on these considerations, the Panel of Judges granted the appeal in its entirety, annulled the DGT’s Objection Decision, and declared that the SKPKB for Article 21 Income Tax for the December 2020 Tax Period had no legal force, resulting in the Article 21 Income Tax payable becoming nil.

Comprehensive Analysis and Tax Court Decision on This Dispute is Available Here