One income is not taxed twice through the same channel. That is the essence of final tax. Once an income is subject to final income tax (PPh final), the tax is settled at the point of withholding or deposit, and the amount is no longer included in the general rate calculation in the Annual Tax Return (SPT Tahunan). It sounds simple, but the implications for costs and bookkeeping are often overlooked.
What can be subject to final tax
Article 4 paragraph (2) of the Income Tax Law (UU PPh), as amended by Law No. 7 of 2021 (UU HPP), opens the list of incomes that can be subject to final tax:
| Group | Example |
|---|---|
| Letter a | Interest on deposits and savings, bond interest, government securities |
| Letter b | Lottery prizes |
| Letter c | Stock and other securities transactions, exchange-traded derivatives, certain venture capital |
| Letter d | Transfer of land and/or buildings, construction services, rental of land and/or buildings |
| Letter e | Other specific incomes determined by government regulations, including businesses with certain gross turnover |
The key word is "can." The rates and procedures are regulated in their respective implementing regulations, so check the rules for the type of income before calculating.
Three consequences of "final" status
First, not combined. Final income is not mixed with income subject to the general rate. In the Annual Tax Return for Corporations, this income is reported in a separate section, while the fiscal net income for the general rate is calculated only from non-final income.
Second, costs do not reduce. Article 13 letter a of Government Regulation No. 94 of 2010 states that costs to obtain, collect, and maintain income that is subject to final tax are considered non-deductible expenses. The logic is: the final tax is calculated from gross income, so the costs have already been "accounted for" in the rate. If these costs are still recorded in the financial statements, they become a positive fiscal correction.
Third, not a tax credit. Final income tax (PPh final) withheld by others cannot be credited in your Annual Tax Return. The withholding evidence should still be kept, but not for reducing the tax owed.
If a business has two types of income
A company with both final and non-final income is required to maintain separate bookkeeping (Article 27 paragraph (1) letter a of Government Regulation No. 94 of 2010). Indivisible joint costs are allocated proportionally (paragraph (2)). A common practice used is the ratio of non-final gross income to total gross income.
Example with fictional numbers:
| Item | Amount |
|---|---|
| Final gross income (building rental) | Rp200 million |
| Non-final gross income (services) | Rp600 million |
| Total gross income | Rp800 million |
| Joint costs (electricity, administrative salaries, office rent) | Rp120 million |
| Deductible costs: 600/800 x Rp120 million | Rp90 million |
| Positive fiscal correction | Rp30 million |
If the entire Rp120 million is charged to non-final income, the taxable profit will be too small, and the difference may appear as a correction during an audit.
Common mistakes in the field
- Costs clearly belonging to final income are still included as deductions.
- Final income is included in the gross turnover subject to the general rate, even though it has already been withheld.
- Final income tax withholding evidence is treated as a tax credit.
It should also be distinguished: final income tax (PPh final) and value-added tax (PPN) are two different taxes on different objects. Income tax is a burden on the party receiving the income, while value-added tax is ultimately borne by the consumer. Therefore, both can apply to a single transaction without being counted as double taxation.
If you prefer to see the explanation directly, there is a clip.
Sources
- Directorate General of Taxes, Copy of Law No. 7 of 2021 on the Harmonization of Tax Regulations, Article 4 paragraph (2) of the Income Tax Law.
- DDTC, Government Regulation No. 94 of 2010 on the Calculation of Taxable Income and Payment of Income Tax in the Current Year, Article 13 letter a and Article 27.
- Ortax, Recognize Income Subject to Final Tax in Corporate Income Tax.
- DDTCNews, Cost Corrections for Final and Non-Final Income, April 20, 2020.