Businesses track spending amounts to ensure they are financially healthy. Income tax expense is one of many financial metrics that business owners and employees must take into account, and you should know how to calculate income taxes.

Most companies have to pay income taxes, so understanding what they are can help.

In this article, we explain what income tax is, explain how to calculate income tax according to applicable law easily and quickly.

 

What is income tax?

 

Income tax or PPh is a tax levied by the government on the taxable income of both individuals and business entities. Businesses typically include this figure on their annual income statement and use it to help determine overall company expenses and profits.

On the other hand, PPh or income tax is a type of tax imposed on people who have worked and have an income of at least IDR 4.5 million per month. This rule applies to Indonesian citizens who work at home or abroad and is paid once a year.

 

Income Tax is divided into two categories, including:

• PPh is charged to individual taxpayers, whether employees, non-employees and entrepreneurs.

• PPh imposed on a company or entity.

 

Laws governing income tax

 

The legal basis for income tax is contained in Law Number 7 of 1983 concerning Income Tax. Where, this law has undergone changes four times, namely as follows.

• UU no. 7 of 1992 regarding amendments to Law Number 7 of 1983 concerning PPh (Income Tax).

• UU no. 10 of 1994 regarding the Second Amendment to Law no. 7 of 1983 concerning PPh (Income Tax).

• UU no. 17 of 2000 regarding the Third Amendment to Law Number 7 of 1983 concerning PPh (Income Tax).

• UU no. 36 of 2008 regarding the Fourth Amendment to Law Number 7 of 1983 concerning PPh (Income Tax).

 

Income tax rates applicable in Indonesia

 

Personal income tax rate

 

Reporting from Kontan.co.id, the Government has changed the provisions on individual income tax (PPh) rates and brackets in the Law on Harmonization of Tax Regulations (HPP). The aim is to provide the principle of justice.

 

Furthermore, the HPP Law introduces five layers of income, namely:

• Income up to IDR 60 million is subject to an income tax rate of 5%.

• Income of more than IDR 60 million to IDR 250 million is subject to 15% tax.

• Income of more than IDR 250 million up to IDR 500 million, with a PPh rate of 25%.

• Income above IDR 500 million to IDR 5 billion is 30%.

• Income above IDR 5 billion is subject to PPh OP of 35%.

 

For the record, the income range is based on income in one year. Previously, there were only four layers of PPh rates, namely for the income range of up to IDR 50 million, a 5% rate was imposed. Then, more than IDR 5 million to IDR 250 million is priced at IDR 15%. Then, income above IDR 250 million to IDR 500 million has an income tax rate of 25%. Finally, income above IDR 500 million is subject to 30% income tax.

 

Corporate income tax rate

 

The corporate income tax rate for the 2019 tax year and below is 25% of taxable income (20%, if the taxpayer is a company that goes public). For the 2020 tax year, the corporate income tax rate fell to 22%, and fell again to 20% for the 2022 tax year. Corporate taxpayers in the form of public companies can use a lower rate of 3% if the total number of paid-up shares traded on the Indonesian Stock Exchange is at least 40% and meets certain criteria, being 19% for the 2020 tax year and 17% for the 2021 tax year.

 

How to calculate income tax

 

As a good citizen, it's a good idea for you to know how to calculate income tax correctly. The calculation itself refers to all forms of income, be it salary, wages, horarium, allowances and other payments related to work.

The size of the PPh also depends on the amount of income you earn. The more income, the higher the tax burden that must be borne. To calculate it, here are the steps you need to understand. First, you must calculate your net income for one year first. Then find out how much your PTKP and PKP are. After everything is calculated, then you can find out how much PPh must be paid.

 

How to calculate net income in one year

 

Based on Law no. 36/2008 Article 6, how to calculate personal income tax refers to your income in one year, including allowances therein. All total income is included in gross or gross income. Before calculating, from the gross it is necessary to find out how much net income was in one year. Net income is obtained from the total gross minus mandatory costs such as pension costs, credit or other debts.

 

How to calculate PTKP (non-taxable income)

 

After finding out how much your net income is in one year, the next step is to find out PTKP. Then later this PTKP will be used to calculate PKP (Taxable Income). The amount of PTKP is different for each person, depending on the number of dependent family members. The Director General of Taxes determines the annual PTKP amount as follows:

 

• Individual taxpayers, amounting to IDR 54 million.

• Additional taxpayers who are married, amounting to IDR 4.5 million.

• Additional for blood family members (maximum 3 people), amounting to IDR 4.5 million.

 

How to calculate PKP (taxable income)

 

How to find PKP is quite simple. Once you know the appropriate PTKP amount, you just need to reduce your net income by the PTKP amount. Thus, you can proceed to how to calculate final Income Tax.

 

How to calculate PPh (income tax) 

 

After successfully finding each point, the final step is to calculate income tax.

As we have discussed above regarding PPh rates, the method for calculating final PPh is based on the percentage that has been regulated by the Director General of Taxes, as follows.

 

• Income up to IDR 60 million is subject to an income tax rate of 5%.

• Income of more than IDR 60 million to IDR 250 million is subject to 15% tax.

• Income of more than IDR 250 million up to IDR 500 million, with a PPh rate of 25%.

• Income above IDR 500 million to IDR 5 billion is 30%.

• Income above IDR 5 billion is subject to PPh OP of 35%.

 

From the calculation above, how to calculate PPh only requires multiplying net income by the appropriate percentage. So if your net income in one year is IDR 100 million, then the PPh charged is 15% of the total income.

 

Example of a case in calculating income tax

 

Example of income tax calculation for a married man

 

To make it easier for you to calculate income tax, please see the following simulation of calculating income tax or PPh: Roni is the head of a family with one child. Roni works at a private company. Gross income (gross) consisting of salary, allowances and other payments is IDR 90,000,000. Roni pays pension contributions and old age benefits worth IDR 5,000,000 every month. So, here is the calculation of the income tax that Roni must pay.

• Calculate net income (Gross Income – dependents) IDR 90,000,000 – IDR 5,000,000 = IDR 85,000,000

• Calculate PTKP (PTKP = Personal + Wife + Children) IDR 54,000,000 + IDR 4,500,000 + IDR 4,500,000 = IDR 63,000,000

• Calculate PKP (PKP = Net income – PTKP) IDR 85,000,000 – IDR 63,000,000 = IDR 22,000,000

• Calculate PPh (PKP x PPh Percentage) Because Roni's PKP is less than IDR 50,000,000, the tax he has to pay is 5% of his PKP IDR 22,000,000 x 5% = IDR 1,100,000

• So, the PPh that Roni must pay for a year is IDR 1,100,000

 

Another example of calculating unmarried income tax

Amir is an employee at a private company who is not married. That way, here is a simulation of Ridwan's tax calculations.

• Salary per month = IDR 5,000,000

• Net income per year = IDR 5,000,000 x 12 = IDR 60,000,000

• PTKP = IDR 54,000,000

• Ridwan's PKP = IDR 60,000,000 – IDR 54,000,000 = IDR 6,000,000

• PPh payment (5% rate) = 5% x IDR 6,000,000 = IDR 300,000

• The PPh has been withheld by the employer (company), so that when reporting the tax in the Annual SPT there is zero or no underpayment of tax.

 

Errors that often occur in calculating income tax

 

How to calculate income tax is actually easy. It's just that basic errors often occur in applying the method of calculating income tax which makes it look complicated. Thus, it is important for you to avoid mistakes when calculating income tax. The following are some mistakes that are usually made when calculating income tax.

 

Doesn't include employment benefits

 

Position allowances are common for private/BUMN/PNS employees. Position costs are the costs of earning, collecting, and maintaining income. Job allowances are an important element in calculating income tax. The amount is 5% of gross income. If it is not included, the calculation results may be inaccurate.

 

Doesn’t calculate according to applicable regulations

 

An employee with taxable income of IDR 55,000,000 is subject to a tax rate of 10%. Automatically, calculation errors will occur because the provisions in PPh Article 17 are not properly followed. Here it is important for us to know the latest guidelines regarding the amount of tax rates applied to Taxable Income (PPh Article 17).

 

Wrong choice of PTKP value

 

Non-Taxable Income (PTKP), this term is probably rarely heard by taxpayers. In fact, some of them are still confused about understanding PTKP. PTKP is the amount of income that is not subject to income tax, so taxpayers whose income is PTKP or below the PTKP limit do not need to pay income tax. The amount of PTKP is likened to the amount of our basic needs for 1 year. Therefore, the government does not burden us with taxes. However, when there is an error in filling out the PTKP form or an error in calculating PTKP, the taxpayer can be subject to PPh. Of course, there is definitely a mistake in calculating income tax.

 

Conclusion

 

Whether you are a business owner or an employee, knowing how to calculate income tax correctly ensures you file tax returns with factual data. If you are a business owner or HR team who has difficulty calculating income tax and processing payroll, you can try using a modern payroll system such as Ipresens payroll and HR software.

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