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)