Since 27 June 2023, the government has officially issued in-kind tax rules through Minister of Finance Regulation (PMK) No. 66 of 2023 concerning the Treatment of Income Tax for Reimbursement or Compensation in Relation to Work or Services Received or Obtained in Kind and/or Fringe Benefits. This regulation is a derivative of the Law (UU) concerning the Harmonization of Tax Regulations (HPP) and Government Regulation (PP) Number 55 of 2022.
This regulation is applicable since 1 July 2023; in principle, this regulation stipulates that every benefit-in-kind and/or fringe benefit is a tax object – with the exception of benefits-in-kind and/or fringe benefits included in the list of exemptions from income tax (PPh) objects.
In this regulation, the government emphasizes the meaning of benefits-in-kind and/or fringe benefits. Benefits-in-kind is defined as compensation received in the form of goods or non-cash – which is transferred from the giver (company) to the recipient (employee).
Furthermore, fringe benefits within this context are defined as compensation in the form of the right to use a facility/service – which can be sourced from the donor’s (company) assets or third-party assets rented/financed by the giver.
From the company’s point of view, in-kind costs and/or benefits provided in connection with work or services, can be deducted from gross income. This applies conversely to the recipient’s side or employees, where benefits-in-kind and/or fringe benefits are PPh objects.
The imposition of taxes on benefits-in-kind and/or fringe benefits plays a concern for industry players. PT Suryacipta Swadaya (Suryacipta), as the developer of the “Suryacipta City of Industry” industrial estate in Karawang and the smart and sustainable integrated township “Subang Smartpolitan”, supports this policy by hosting a socialization session for Tenants and Clients from Suryacipta City of Industry and Subang Smartpolitan; the majority of participants are industrial players within the manufacturing sector.
Due to the high enthusiasm of the participants, Suryacipta held two consecutive seminars for Tenants and Clients. On July 25, 2023, Suryacipta hosted a joint socialization with KPP Madya and KPP Pratama Karawang to discuss regulations through a general perspective. On July 26, 2023, Suryacipta hosted a seminar and a webinar together with Partner – MUC Consulting & KAP Razikun Tarkosunaryo, who discussed the tax and accounting aspects of benefits-in-kind and/or fringe benefits taxes in accordance with PMK No. 66 Year 2023.
Cindy Miranti, the Tax Advisory Manager of MUC Consulting, lists the several benefits for companies by establishing benefits-in-kind as a tax object in her presentation, which includes:
- Benefits-in-kind fees can be borne by the employer (company). Since the enactment of the HPP Law, in-kind costs are considered costs that can be deducted in calculating Corporate Income Tax (deductible expense). This reverses the total tax treatment of in-kind that companies previously could not afford.
- Corporate Income Taxable Income (PKP) becomes smaller. In-kind costs that can be disbursed have an impact on the potential for a decrease in the value of PKP when compared to the calculation of Corporate Income Tax prior to the enactment of the HPP Law.
- The amount of tax paid by the company becomes smaller. As explained in the previous point, because the taxable income is smaller, the amount of corporate income tax that must be paid by companies is lower.
- Cost of time for reconciliation is reduced. Considering that all in-kind items have been regulated as deductible expenses for the company, therefore the time needed to make a reconciliation (positive correction) of the tax examiner’s findings is reduced.
- All benefits-in-kind received by employees in 2022 are excluded as tax objects.
Benefits-in-kind and/or fringe benefits received by employees in 2022 are excluded as income. From the company’s perspective, in-kind costs in 2022 can still be used as deductible expenses.
Thus, it is expected that in the future, companies will not hesitate to improve employee welfare – one of which is by providing benefits-in-kind and/or fringe benefits. As for the employees themselves, this regulation emphasizes the types and limitations of benefits-in-kind and/or fringe benefits that are excluded as PPh objects, so that not all benefits-in-kind rewards and/or fringe benefits received by employees become PPh objects.
Socialization, seminars, and webinars related to in-kind tax and/or fringe benefits are one of the facilities provided by Suryacipta to assist Tenants and Clients in applying these rules to the company’s business operations. Suryacipta also supports government programs to “ease of doing business”, as well as attracting clients and potential investors to place their businesses in Suryacipta City of Industry and Subang Smartpolitan.