The end of March is the deadline for submitting annual tax returns. And foreigners are a big target of course – well you don’t think they’re actually gonna go after the men in those uniforms with their nice little side businesses do you? No – of course not. So a 35 percent effective tax rate for some and zero for the others. But noone ever said life was fair.
For the gloomy details, you might want to read this article I wrote for a now defunct Jakarta magazine. Enjoy!!!
Watch out! The taxman is after you
Sharp-witted Benjamin Franklin once observed there were two guarantees in life - death and taxes. So, if you haven’t been paying your income tax, you’d better watch out. The taxman is on the lookout for people like you.
Since the Indonesian economy went belly up in 1997, the government has been under a great deal of pressure to find new sources of funds to balance its books. One of the ways it intends to do this is by getting more individuals to pay income tax.
And foreigners naturally make a juicy target.
To this end, the government now requires all individuals in Indonesia (including expats) to file an annual tax return with the tax authorities.
Unlike the previous system, the onus is now on individual taxpayers to ensure that they have registered with the tax office and that they pay the appropriate amount of tax due.
It is therefore vital to check that your employer is really paying the income tax on your salary, as you could later receive a very nasty surprise indeed (it is not unknown for some companies in Indonesia to "negotiate" their tax liability with the tax officials).
And to avoid any problems with your employer it is a very good idea to have your salary expressed in gross terms in your employment contract. As long as you can show that you only received the net amount of your salary, the tax authorities should be convinced that your employer is responsible for the income tax on your salary.
When you register with the tax office, you will be given your own unique tax number (known by its Indonesian acronym NPWP). Foreigners are required to apply for a NPWP if they reside in Indonesia for more that 183 days within a single 12-month period or if they intend to live in the country.
You may be deemed to have “the intent” to live in Indonesia if you apply for a work permit or rent out a house, for example. It is also important to realise that the regulation also applies to those foreigners holding business or social visas, and not just to those holding a KITAS.
Taxpayers should register at their local Tax Office in their city of residence. If you have a KITAS, you may find (like this writer) that the tax authorities contact you before you have the chance to contact them! In an effort to identify potential foreign taxpayers, the Tax Office plans to obtain data from a number of sources such as local and foreign companies, apartments and hotels.
Before you file the tax return, seek professional help. And ask your company for advice. Also note that the Indonesian taxation system takes into account ALL your income – whether it is earned in Indonesia or not! Although credit is given for income tax paid overseas to prevent double taxation, many expats are, not unsurprisingly, rather wary of having to declare any income earned overseas. To do the best thing here, make sure you speak to a good accountant or financial consultant.
And if you don’t pay your taxes? Just ask Mark Michael Greenwood from the UK. He was jailed for tax arrears amounting to an astonishing 45.8 billion rupiah. And besides Greenwood, another 17 expatriates who have not paid their taxes also face the prospect of spending up to six years in the slammer and a maximum fine of four times the total amount of the tax arrears due.
No one ever said that paying taxes is a nice thing. But face it: there are some things that just cannot be avoided. So pay up, and, if you still feel down, you can always drown your sorrows in a Bintang!
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