Implementation of Average Effective Tariff (TER) in Income Tax Article 21

Implementation of Average Effective Tariff (TER) in Income Tax Article 21

“I don’t understand TER tax,” complained an employee in a social media group about the new tax rules using TER PPh 21. Because he was confused, he uploaded complaints regarding changes in calculating employee salary tax. So, the answer to the question of taxes ranges from those with a dent, to the extreme wheelbarrow sticking out. This means that the socialization regarding taxes has not been successfully understood.

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TheIKNPost.com — Implementation of Average Effective Rates (TER) in PPh Article 21: Simplification Efforts and Impact on Employee Salaries

The aim of issuing this regulation is to simplify the calculation of PPh Article 21 in the form of Average Effective Tariff (TER).

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On January 1 2024, the application of the average effective rate (TER) for Income Tax (PPh) Article 21 will come into effect in accordance with Government Regulation Number 58 of 2023.

This regulation, as conveyed by the Directorate General of Taxes (DJP) via its Instagram account @ditjenpajakri, aims to simplify the calculation of PPh Article 21 by using the average effective rate (TER).

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The DJP emphasized that this is not the implementation of a new tax, so it will not add a new tax burden to employees.

The basis for calculating PPh 21 refers to the rates of Article 17 Paragraph 1 letter a of the Income Tax Law (UU PPh), with the addition of daily and monthly average effective rates.

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DGT assures that this change will not impose additional burdens on employees, but only to simplify calculations.

According to the Director of Extension, Services and Public Relations of DJP, Dwi Astuti, this regulation will not burden employees with additional new tax burdens.

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The imposition of TER on employee salary tax is regulated in Article 13 PMK 168 of 2023. There are two instruments prepared by the DJP to assist employers in calculating PPh Article 21, namely a tax calculator which can be accessed via the site jasa.go.id and a guidebook for calculating deductions PPh 21.

However, there may be confusion regarding the reduction in salary caused by using the TER method. However, according to the Tax Withholding Tax Book Article 21/26 published by the DJP, there are no new taxes or additional burdens in the imposition of PPh on individual taxpayers using the TER scheme.

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This method only reformulates the calculation stages in the form of effective rates.

The TER PPh 21 simulation for a salary of IDR 15.5 million per month can provide a clearer picture of how tax calculations are carried out.

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A permanent employee who is unmarried and has no dependents who receives a salary of IDR 15.5 million per month will experience a monthly deduction from PPh Article 21 according to the effective monthly rate.

In the last month of the tax year, the calculation returns to normal as before.

The excess withholding of PPh Article 21 will be returned by the employer to the employee concerned, accompanied by proof of withholding of PPh Article 21 for the last tax period. Employees are also required to report income received from employers in their Annual Income Tax Return.

Thus, the implementation of the average effective rate (TER) in PPh Article 21 is a step towards simplifying tax calculations which should not impose additional burdens on employees.

Comparison of the old method of calculating income tax and the TER scheme

The implementation of the TER scheme in calculating income tax has upset business people and employees. The reason is, this scheme is considered an additional burden because the calculation method is different from the usual income tax calculation.

It was then explained that this TER scheme is not an additional burden, and in practice actually makes it easier to calculate monthly income tax on employee salaries.

Previous method of calculating income tax:

-Calculate your gross income in a year, including basic salary, allowances, meals, transportation, health, etc.
-Calculate PTKP (Non-Taxable Income) according to your family status, whether you are married or not, and the number of children.
-Decrease with a 5% position fee allowance (maximum IDR 6 million) and 5% pension contribution (maximum IDR 2.4 million). These two costs are taken from the calculation of gross salary for a year.
-Calculate net salary (gross salary – PTKP – position fees or pension).
-After the net salary is obtained, multiply it by the applicable tax rate.

How to calculate TER scheme income tax:

Daily: Daily gross salary multiplied by the tax amount in the TER scheme based on categories A, B, or C

Monthly: Gross monthly salary multiplied by the amount of tax in the TER scheme based on categories A, B, or C

Example of calculating the effective tax rate TER 2024

To understand better, the following is an example of comparing the calculation of income tax Article 17 (progressive tax) with the calculation of income tax for the TER scheme (latest Average Effective Rate).

Rosi, an individual taxpayer who is married and has no dependents, works as a permanent employee at PT NBC with a monthly income of IDR 10,000,000.00.
Old income tax calculation:

According to the current PPh withholding regulations, the calculation is carried out as follows:

By subtracting the Position Fee of 5% from the salary of IDR 10,000,000.00, namely IDR 500,000.00, Indi’s monthly net income will be IDR 9,500,000.00. Annual net income is calculated by multiplying monthly net income by the number of months, namely:

12×Rp 9,500,000.00=Rp 114,000,000.00

12×Rp 9,500,000.00=Rp 114,000,000.00

Based on Rosi’s status as married without dependents (K/0), her annual PTKP is IDR 58,500,000.00. So, the total deduction from a year’s net income is IDR 58,500,000.00, and yearly Taxable Income is IDR 55,500,000.00.

So, the total PPh Article 21 payable is calculated as 5% of IDR 55,500,000.00, namely IDR 2,775,000.00. Income Tax Article 21 per month becomes IDR 2,775,000.00 divided by 12, with a final total of IDR 231,250.00.

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