PPh 21 Dynamics: Pension Fund Withdrawals by Active Employees

In financial planning, employees sometimes face urgent needs or wish to utilize their pension balance before retirement age arrives. Indonesian tax regulations anticipate this with specific rules under Income Tax (PPh) Article 21. This category specifically targets pension program participants who are still employed but withdraw pension benefits or similar income.

It is crucial to distinguish this scheme from severance pay or pension benefits paid as a lump sum upon resignation (which are Final Tax). The scheme discussed here applies to those who are still actively working but withdraw a portion of their pension funds from the Pension Fund, BPJS Ketenagakerjaan (BPJSTK), TASPEN, or ASABRI.

Calculation Mechanism: Article 17 Rate x Gross Amount

Since the enactment of Minister of Finance Regulation Number 168 of 2023, the calculation mechanism for this category has been reaffirmed. Unlike monthly salary calculations that use the Monthly Effective Rate (TER), the tax calculation for pension fund withdrawals by active employees uses Article 17 paragraph (1) letter a of the Income Tax Law directly multiplied by the Gross Income.

Key points in this calculation are:

• Tax Imposition Base (DPP): This is the gross amount of pension benefits withdrawn. There are no deductions for office costs or Non-Taxable Income (PTKP) in the specific calculation of this transaction.
• Rate: Uses the general progressive rates (5%, 15%, 25%, 30%, 35%).
• Withholder: The party required to withhold is the pension payer (e.g., Pension Fund or BPJSTK), not the company where the employee works (unless that company also manages the pension fund).

Case Example: Mr. Q (Pension Fund Withdrawal)

Let's take an illustration based on the latest regulation attachment. Mr. Q works as a Permanent Employee at PT J with a salary of Rp12,000,000 per month. PT J enrolls its employees in a pension program at Pension Fund DEF.

Scenario 1: First Withdrawal (April 2024)

In April 2024, Mr. Q needs funds for home renovation and withdraws pension benefits from Pension Fund DEF amounting to Rp20,000,000.

• Calculation: Since the gross amount (Rp20 million) is still under the first bracket limit (Rp60 million), the rate is 5%.
• PPh 21 = 5% x Rp20,000,000 = Rp1,000,000

Scenario 2: Second Withdrawal (June 2024)

In June 2024, Mr. Q again withdraws pension benefits amounting to Rp15,000,000.

• Calculation: The calculation is done per transaction/tax period based on the gross amount withdrawn at that time.
• PPh 21 = 5% x Rp15,000,000 = Rp750,000

Reporting Obligations

Pension Fund DEF is required to withhold the tax and provide a withholding slip to Mr. Q. Mr. Q can later use this withholding slip as a tax credit in his Annual Personal Income Tax Return, as this withholding is not final.

Conclusion

For employees who are still active, withdrawing pension funds is considered taxable income subject to progressive rates directly on the gross value. This differs from severance pay paid as a lump sum upon stopping work. Understanding this is important so employees are not surprised by tax deductions when funds are disbursed, and so they keep the withholding slips for annual tax reporting.

Regulatory References:

• Government Regulation Number 58 of 2023 concerning Article 21 Income Tax Withholding Rates on Income in Connection with Work, Services, or Activities of Individual Taxpayers.
• Minister of Finance Regulation Number 168 of 2023 concerning Implementing Guidelines for Withholding Tax on Income in Connection with Work, Services, or Activities of Individual Taxpayers (Article 5 paragraph 1 letter g, Article 12 paragraph 7, and General Guideline Attachment VI).
• Book "Cermat Pemotongan PPh Pasal 21/26" (Directorate General of Taxes, 2024).