Employee Discounts: When Are They Taxable under PPh 21?

It is common for companies to provide special price facilities to employees for purchasing company products. Under the latest regulations regarding benefits in kind (natura/kenikmatan), this facility is categorized as a "Price Reduction Facility".

Here is the analysis for the three scenarios:

1. Scenario: Given for Free (Cuma-Cuma)

If the company gives the product for free, there is a transfer of goods without payment.

• PPh 21 Aspect: The entire COGS (HPP) value of the goods is calculated as the employee's gross income in the form of benefit in kind in the month the goods are received.
• Case Example: PT Garmen Indah manufactures shirts with a COGS of Rp150,000. The retail price is Rp300,000. The company gives 1 free shirt to Mr. A (employee).

  • Taxable Income for Mr. A: Rp150,000 (Value of COGS).
  • The company withholds PPh 21 on this additional income of Rp150,000.

2. Scenario: Paid Below Cost (COGS)

If the employee buys the product, but the price paid is very low, below the company's capital cost (COGS).

• PPh 21 Aspect: The difference between the COGS and the Price Paid by the Employee is the PPh 21 object.
• Formula: Income = COGS - Employee Payment
• Case Example: PT Elektronik Maju sells Laptops with a COGS of Rp5,000,000. The market price is Rp8,000,000. Because Mr. B is an exemplary employee, he is allowed to buy the Laptop for Rp3,000,000.

  • Analysis: Payment (3m) < COGS (5m).
  • Taxable Income for Mr. B: Rp5,000,000 - Rp3,000,000 = Rp2,000,000.
  • This Rp2 million figure is added to Mr. B's gross salary for that month for tax withholding.

3. Scenario: Paid Slightly Above COGS (Below Market Price)

This is the most common scenario. Employees get a large discount compared to the market price, but the company does not "lose capital" because the payment price is still above or equal to the COGS.

• PPh 21 Aspect: Non-Taxable Object. There is no additional income to be recorded or taxed.
• Reason: As long as the employee pays higher than or equal to the cost incurred by the company (COGS) for the item, there is no taxable benefit value received, even though the price is much cheaper than the market price.
• Case Example: PT Otomotif Jaya produces motorcycles with a COGS of Rp15,000,000. The normal selling price to consumers is Rp25,000,000. Mrs. C (employee) buys the motorcycle at a special price of Rp16,000,000.

  • Analysis: Payment (16m) > COGS (15m).
  • Taxable Income: Rp0 (Nil).
  • Although Mrs. C "saved" 9 million from the market price, tax-wise there is no PPh 21 object because she paid above the COGS.

Conclusion

For the company's Payroll or Tax team, the crucial data needed is not just the discount price, but the COGS (HPP) data from the accounting department. PPh 21 only arises if the company "subsidizes" the price of goods to below its capital cost.

Regulatory References:

1. Minister of Finance Regulation Number 66 of 2023 concerning Income Tax Treatment on Reimbursement or Compensation in Connection with Work or Services Received or Obtained in the Form of In-Kind and/or Benefits (Article 22 paragraph 1 letter b).
2. Memorandum of the Director General of Taxes Number ND-14/PJ/PJ.02/2024 (Appendix A Number 1: Example of Determining Income in the Form of Work Reimbursement or Compensation in the Form of Price Reduction Facilities (Discounts) from Employers).