Social foundations required to pay income tax

Social foundations required to pay income tax

JAKARTA (JP): All incomes generated by social foundations from
direct operations, including those engaged in educational and
health activities, are taxable, Tax Director General Fuad
Bawazier announced yesterday.

The director's circulation letter, which contained the
stipulation, was issued to clarify the terms of taxable and
untaxable incomes of foundations or non-profit entities.

In his explanation, Fuad said that the fiscal measure was
introduced to comply with the newly amended tax law, which has
defined foundation incomes more clearly.

Untaxable incomes were previously defined only as "certain
incomes".

"The amended law removes in principle the clause on certain
incomes of foundations, which have often been misinterpreted," he
told a press briefing.

The only untaxable incomes of foundations, according to the
Tax Director General, are financial aid, contributions, dividends
or grants to religious and educational institutions.

Fuad said that all incomes obtained by foundations, including
those involved in educational activities and health services, are
also taxable.

The taxable incomes of those involved in education activities
include contributions received for building construction,
tutorial fees and gains from seminar activities.

The taxable incomes of foundations or organizations involved
in public health services include admission fees, and user
charges for bedrooms and other hospital facilities and services
as well as those obtained from the sale of medicines.

The taxable incomes also include all earnings obtained by
foundations from the interests of bank deposits or savings and
Bank Indonesia Certificates.

Other incomes

Other taxable incomes are rental fees, capital gains from the
sales of assets, including those obtained in the forms of
contribution or grant.

He said that foundations engaged in educational activities or
health services, which provide free tutorial fees or health
services for financially incapable students or patients, are
allowed to deduct the forfeited fees from their taxable incomes.

Fuad said that the costs of scholarships provided by non-
educational institutions to poor students and of health services
given free of charge or at discounted prices by health
foundations to financially-weak patients could also be deducted.

Yesterday, the Tax Director General also clarified the tax
treatment on the claims for old-age savings from PT Taspen, the
state-owned company managing pensions and life insurance for
civil servants.

"The old-age savings claim is exempted from the 15 percent
withholding income tax because the service is similar to those
provided by insurance firms," he said.

PT Taspen, whose status is not classified either as a pension
fund management firm nor as an insurance firm, mistakenly
collected a 15 percent income tax on the old-age savings funds it
paid to its clients due to its misinterpretation of the tax
ruling.

Purwanto Abdulcadir, Taspen's president, acknowledged
confusion about the tax treatment of the old-age provident
funds.

"We therefore consulted with the tax office on how to give
fair treatment to our clients," he said in a joint press briefing
with the tax director general.

"Now the matter has been straightened out and we, therefore,
have to refund all the taxes that we have collected," he said.

Purwanto said that Taspen, which pays an average of around Rp
25 billion (US$11.3 million) in old-age savings claims per month,
has collected at least Rp 1.8 billion in tax payments from its
clients since May.(hen)