Employee Income Tax Proposed to Change: Between Equity and the Risk of Job Discrimination

The Indonesian economic landscape continues to be volatile, marked by significant fiscal policy movements, especially concerning employee income tax (PPh21).

In this context, the government is proposing a change to the PPh21 revenue-sharing scheme, along with its potential impact on various sectors and the response from business leaders and economists. This issue offers a comprehensive overview of the government's efforts to manage fiscal matters amidst dynamic economic and social conditions.

The government is targeting an increase in state revenue in the Draft State Budget (RAPBN) 2026, supported by optimistic macroeconomic assumptions and without raising tax rates. However, to achieve this target, the government proposes changing the revenue-sharing scheme for Income Tax Article 21 (PPh21). Finance Minister Sri Mulyani Indrawati has floated the idea of shifting PPh21 distribution from the location of the office to the domicile of the worker, aiming to promote equitable income distribution among regions.

Nevertheless, this discourse has sparked debate. The new scheme could potentially create a risk of job discrimination and administrative complexity, as it might trigger inter-regional competition to attract workers and investment. Meanwhile, business circles support the policy of no tax rate increase, but they also highlight the vulnerability of the labor-intensive sector to this policy change, which could affect labor costs and competitiveness.

Overall, the government is attempting to balance its fiscal ambitions with social justice through the proposed change in the PPh21 scheme. However, the government needs to consider the potential side effects, such as the risk of discrimination, bureaucratic complexity, and its impact on the labor-intensive sector, to ensure the policy is truly effective and acceptable to all parties.

The government's effort to manage state fiscal affairs is evident through a more innovative approach, rather than merely raising tax rates. One of the strategies planned is the change in the PPh21 scheme, which is directed at increasing regional revenue while achieving fiscal equity. Nevertheless, this policy raises concerns among businesspeople and economists regarding the potential risk of discrimination and complexity in its implementation. Therefore, all parties need to be cautious in assessing the implications of this proposal.

Indonesia's fiscal policy demonstrates a complex balance between efforts to increase state revenue and ensure justice. The proposed change to the PPh21 scheme and the macroeconomic assumptions in the RAPBN 2026 reflect this complexity. The government must ensure that the formulated policy not only increases revenue but is also fair, transparent, and does not create new burdens for the public and the business community.