Tax-Free: PPh 21 Treatment on Occupational Disease Treatment Costs

In the latest tax landscape following the implementation of Benefit in Kind (Natura) regulations (PMK 66 of 2023), health facilities provided by companies to employees are generally categorized as Article 21 Income Tax (PPh 21) objects. However, there is a crucial exception that every business entity and employee needs to understand: treatment facilities for Occupational Diseases (Penyakit Akibat Kerja).

This facility receives special treatment—it is not a tax object for the employee but is deductible for the company. This article reviews the definition, tax treatment, and case examples.

Understanding Occupational Diseases (PAK)

Before discussing taxes, we need to understand what is categorized as an Occupational Disease. Referring to Presidential Regulation Number 7 of 2019, Occupational Disease is a disease caused by work and/or the work environment.

These are not general illnesses (like flu or dengue fever), but specific diseases arising from work activities. Types include:

1. Chemical Factors: Diseases due to exposure to chemicals like lead, benzene, or pesticides.
2. Physical Factors: Hearing loss due to noise or muscle/joint disorders due to machine vibration.
3. Biological Factors: Infectious diseases like TB or Hepatitis for medical personnel.
4. Target Organs: Respiratory diseases (occupational asthma), skin diseases (dermatosis), or musculoskeletal disorders (carpal tunnel syndrome due to repetitive motion).

Tax Aspects: Exclusion from PPh 21 Objects

Based on PMK 66 of 2023 and affirmed in Memorandum Number ND-1108/PJ.02/2023, health care and treatment facilities provided by the employer are excluded from PPh objects (Non-Taxable) as long as they are provided for handling:

1. Work accidents;
2. Occupational diseases;
3. Life-saving emergencies; or
4. Follow-up care and treatment due to points 1 and 2.

Case Examples and Application

Case 1: Chemical Exposure (Manufacturing Sector)

Mr. A works in the car painting division at PT Otomotif Maju. Due to long-term exposure to paint and solvents, Mr. A was diagnosed with occupational asthma (a respiratory disease caused by irritants in the workplace) by a doctor.

• Action: PT Otomotif Maju paid Mr. A's medical expenses at the Hospital amounting to Rp15,000,000.
• Tax Aspect: The Rp15,000,000 is Not a PPh 21 Object. Mr. A receives full treatment facilities without tax deduction. PT Otomotif Maju records the Rp15,000,000 as a company expense.

Case 2: Musculoskeletal Disorder (Office/Admin Sector)

Ms. B is an administrative staff member who types data for 8 hours a day continuously. She was diagnosed with Carpal Tunnel Syndrome (pain/numbness in the wrist) categorized as an occupational disease due to repetitive motion.

• Action: Ms. B underwent therapy and minor surgery costing Rp10,000,000 which she paid herself first, then was reimbursed by the company.
• Tax Aspect: The reimbursement money of Rp10,000,000 received by Ms. B is Not a PPh 21 Object because it relates to an occupational disease. This differs from reimbursement for ordinary illnesses (e.g., ordinary toothache) which would be taxable.

Conclusion

Companies must carefully classify health costs. If the cost arises from work risks (Occupational Diseases), the facility is tax-free for the employee. Proper administration, such as a doctor's certificate or diagnosis stating that the disease arose from the employment relationship, is required to ensure this facility is not considered taxable income during an audit.

Regulatory References:

1. Presidential Regulation Number 7 of 2019 concerning Occupational Diseases.
2. 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 (Attachment A Number 4).
3. Memorandum of the Director General of Taxes Number ND-1108/PJ.02/2023 concerning Affirmation of PPh Treatment on Employment Benefits in the Form of Health Facilities for Employees.