Withholding Tax Mechanism Needs Overhaul with Coretax Implementation

The Tax Payer Community (Masyarakat Pembayar Pajak Indonesia) has proposed reforming the income tax (PPh) withholding mechanism in line with the implementation of the Coretax system. The data-driven tax system means the government no longer needs to depend on tax withholding by third parties.

Tax Payer Community Chairman Abdul Koni stated that the withholding tax system was created when the government had limited ability to obtain transaction data. However, this has changed now that the Directorate General of Taxes has Coretax, which is capable of real-time supervision through data integration, transaction matching, risk analysis, and taxpayer profiling.

“In the Coretax era, the state’s main function should shift from forcing third parties to collect taxes to directly monitoring taxpayer compliance through technology. A good tax is one that is collected fairly, transparently, and on target, and is accepted by the public as a form of mutual cooperation to build an advanced, prosperous, and blessed Indonesia,” Koni said in a statement quoted on Friday (17/7/2026).

According to Koni, the data-based supervisory capabilities of Coretax mean the government no longer needs to rely on companies as tax withholders. Therefore, the administrative burden borne by companies needs to be evaluated. Besides increasing compliance costs, this mechanism also has the potential to trigger administrative errors, tax disputes, and even the risk of double taxation.

Consequently, Koni proposed the implementation of Direct Tax Settlement, a mechanism that authorises income recipients to calculate, pay, and report their own taxes. The income provider would only report the transaction, while Coretax would perform automatic data matching and risk-based supervision.

According to Koni, this model would simplify tax administration, reduce compliance costs, increase legal certainty, and lessen tax disputes, which have largely been triggered by administrative issues in tax withholding. He added that the tax system must uphold the principles of fairness, legal certainty, administrative ease, and compliance cost efficiency so that the public can feel its benefits.