Why Should Private Sector Employee Bonuses Be Subject to Tax Deduction?
JAKARTA — The government’s policy to impose tax withholding on Festive Season Allowance (THR) bonuses for workers has generated considerable support and opposition within society.
Furthermore, the tax deduction on THR is only applied to private sector employees, whilst Civil Service Apparatus (ASN) members, military personnel and police officers are exempted.
Economist M Rizal Taufikurahman offered his perspective on why private sector employee bonuses should be subject to tax deduction.
“The government maintains taxation on THR primarily for consistency with the taxation system and the need to preserve the state’s tax revenue base,” said Rizal when contacted by Kompas.com on Monday.
This is because Indonesia’s tax-to-GDP ratio remains relatively low, at only around 10 to 11 per cent of gross domestic product.
Therefore, the government seeks to maintain all existing tax revenue sources, including from THR.
“If THR were excluded from taxation, it would potentially create distortions because companies could shift portions of salary into non-regular allowances to avoid tax,” Rizal said.
According to the relevant statute, additional income such as bonuses or THR automatically becomes part of the tax base when workers’ income exceeds the Non-Taxable Income threshold (PTKP) of Rp 54 million per year.
“However, the main issue is not the tax legality, but rather the timing of the policy,” he clarified.
The tax deduction ahead of Eid al-Fitr is considered poorly timed, as THR is received by workers when household consumption is increasing.
Thus, the tax deduction could potentially slightly reduce the consumption stimulus that typically supports seasonal economic activity.
“For private sector workers, income tax (PPh 21) is directly withheld by the company when THR is paid, whereas for civil servants there is often fiscal compensation room through government policy,” Rizal noted.
Yet in modern taxation, the system implemented should be based on ability to pay or taxpayers’ capacity to pay taxes, rather than employment status.