Year-End Bonus Adjustment under Article 21 Income Tax: Dispute on Accrual versus Actual Payment Recognition

PT KL is a property development company that has filed an appeal against the correction of Income Tax (PPh) Article 21 for the December 2021 tax period amounting to Rp98,802,709.00. The correction arose because the DGT found a discrepancy in the employee bonus account, which was deemed not to have been fully deducted and reported as subject to PPh 21. Based on the results of the audit, the DGT assessed that there was a bonus of Rp104,936,961.00 that was still subject to PPh 21 but was not taken into account by PT KL.

PT KL argued that the said bonus had not yet become taxable income in 2021 because it was still in the form of an accrual (provision). The bonus was actually paid and received by employees in February 2022, at which time the withholding and reporting of Article 21 Income Tax were properly carried out. The taxpayer referred to Article 15 paragraph (1) of Government Regulation No. 94 of 2010, which stipulates that tax withholding is conducted at the end of the month when the payment occurs or when the income becomes payable, not at the time of accrual.

Meanwhile, the DGT based its stance on the reconciliation of Article 21 taxable objects between the financial statements and the Article 21 Monthly Tax Return, asserting that the bonus amount must still be recognized as taxable income in 2021 since it was recorded under the salaries and wages expense account for that year.

Upon examination, the Tax Court Panel of Judges considered that employee bonuses still in accrual form and only paid in the following year cannot be deemed as income received or earned by employees in 2021. Therefore, there was no obligation to withhold Article 21 Income Tax at the time of such accrual.

The Panel ultimately granted PT KL’s appeal and ruled that the DGT’s correction amounting to IDR 98,802,709.00 was unfounded, as the actual payment occurred in February 2022 and had already been properly subjected to Article 21 withholding at that time.

This decision reaffirms the application of the matching principle and the realization principle of income under Article 21 Income Tax, emphasizing that the obligation to withhold tax arises only when income is actually received by employees, not when it is merely recognized for accounting purposes.

A comprehensive analysis and the Tax Court Decision on This Dispute Are Available Here