The reason tax deductions on service payments are often incorrect is usually not due to arithmetic. Percentages and multiplications are actually the easiest parts. What determines whether it is correct or not lies in the very first decision: which tax actually applies to the invoice on your desk. A single service invoice can fall under three different regimes, each with different rates, bases for assessment, and consequences.
Branch One: Who You Are Paying
For general services such as management, engineering, consulting, or repairs, the identity of the recipient determines the regime.
If the recipient is an individual, such as a freelancer or a personal expert, the applicable tax is PPh Article 21 under the non-employee scheme. PMK 168/2023 establishes the deduction base at 50 percent of gross income, then applies the progressive rate of Article 17 of the Income Tax Law. This regulation also eliminates the old distinction between continuous and non-continuous income: a single formula, calculated per tax period, is no longer cumulative with previous periods.
If the recipient is a business entity such as a PT or CV, the applicable tax is PPh Article 23 at a rate of 2 percent of the gross amount excluding VAT. Details of other types of services that are subject to this tax can be found in PMK 141/PMK.03/2015.
Both are tax creditable, meaning they will be recalculated in the recipient's Annual Tax Return. Therefore, the withholding evidence must be submitted to the party being withheld, not just archived in your place.
Two Types of Work Have Their Own Path
Construction services and land or building rentals fall outside the above pattern, regardless of who the recipient is, and both are final. Final taxes are settled at the withholding point and cannot be credited again by the recipient.
Land and/or building rentals are subject to PPh Article 4 paragraph (2) at a rate of 10 percent of the gross rental value, in accordance with PP 34/2017. The gross amount here includes everything paid related to the rented land or building, including other accompanying costs.
The rates for construction services are not uniform. PP 9/2022 increases the number of rates from five to seven:
- 1.75 percent for construction work by service providers with small business qualification certificates or individual work competency certificates
- 2.65 percent for construction work by other service providers, including medium, large, or specialist qualifications
- 4 percent if the service provider does not have a certificate
- 3.5 percent and 6 percent for construction consulting services, respectively certified and non-certified
- 2.65 percent and 4 percent for integrated construction work, respectively certified and non-certified
Rate Increase for Not Having NPWP is No Longer Automatic
This section is often executed under the old rules. The provision for a higher rate for recipients without NPWP is indeed still alive in the Income Tax Law. However, according to the Director General of Tax Announcement PENG-6/PJ.09/2024, if the recipient's identity is filled with an NIK that is integrated with the DJP administrative system, the higher rates referred to in Article 21 paragraph (5a), Article 22 paragraph (3), and Article 23 paragraph (1a) do not apply to resident individuals.
Practically, after the NIK matching process is implemented, most individuals are no longer subject to that increase. What remains in effect is a 100 percent increase for business entities without NPWP on PPh Article 23, making the rate 4 percent. A calculator that automatically raises the rate when the NPWP box is unchecked will overstate the deduction for individual cases.
Payment Dates Shift Starting 2025
The habit of making payments by the 10th is no longer applicable. PMK 81/2024 standardizes the deadline for withholding and collecting PPh, including Articles 21, 23, and 4 paragraph (2), to no later than the 15th of the following month after the tax period ends. The deadline for reporting the Monthly Tax Return remains the 20th. If the due date coincides with a holiday or national joint leave, payment can be made on the next working day.
When One Invoice Contains More Than One Item
The amount listed on the invoice does not always equal the deduction base. For non-employees, PMK 168/2023 excludes payments for other parties employed and the purchase of goods or materials from gross income, as long as it can be proven with a work contract, wage payment list, material purchase invoice, or billing from the relevant third party. Without that evidence, the entire invoice amount becomes the tax base, and the difference in deductions can multiply.
If the branches have become too numerous to remember one by one, the sequence of questions can be traced through the tool Cut Tax When Paying for Services. What needs to be ensured remains the same: who the recipient is, for what work, and what identity is stated on the withholding evidence.
Sources
- Directorate General of Tax, PMK 168 of 2023 on Guidelines for Withholding PPh Article 21
- Directorate General of Tax, PENG-6/PJ.09/2024 on the Use of Tax Identification Numbers in the Tax Administration System
- Directorate General of Tax, Final PPh Rates for Construction Services Decrease (PP 9 of 2022)
- DDTCNews, Fill NIK in e-Bupot Unification, Is the PPh Article 23 Rate Normal? This is What DJP Says
- Ortax, PMK 81 2024 Changes the Due Date for Tax Payments, Here Are the Details
- Ortax, Final Tax Imposition on Land and/or Building Rentals (PP 34/2017)