Government Exempts Income Tax on Salaries Up to IDR10 Million

by: (Muchamad Irham Fathoni), employee of Directorate General of Taxes

The government has once again extended its fiscal stimulus policy for the 2026 fiscal year by granting an Article 21 income tax facility borne by the government. It is granted for workers in certain industrial sectors and tourism sector. This policy is stipulated in The Regulation of the Minister of Finance Number 105 of 2025 on Article 21 Income Tax on Certain Income Borne by the Government in the Framework of the 2026 Economic Stimulus (PMK 105/2025).

PMK 105/2025 was enacted on December 29, 2025 and came into force on December 31, 2025. Under this regulation, the incentive applies for the January 2026 to December 2026 tax periods. It is enacted as part of the government’s stimulus package aimed to maintain public purchasing power and support economic and social stabilization.

Limited Application to Specific Sectors and Business Classifications

The incentive does not apply universally to all workers. The government has expressly limited the employers eligible to utilize this facility. According to Article 3 of The Regulation of Minister of Finance Number 105 of 2025, the eligible employers must run in the footwear, textiles and apparel, furniture, leather and leather goods, or tourism sectors, and must hold specific business field classification codes as listed in Appendix A of the regulation.

A total of 133 main business field classification codes have been identified. The determination of these codes is based on the administrative data of the Directorate General of Taxes (DGT) as of January 1, 2026 for taxpayers registered prior to that date, or as of the registration date for newly registered taxpayers thereafter.

Eligibility Criteria for Employees

The incentive is granted to the eligible employees, both permanent and nonpermanent, who work for employers meeting the aforementioned criteria.

For eligible permanent employees, the three key requirements must be satisfied. First, the employee must have a tax identification number and/or a national identification number integrated to the DGT’s system.

Second, the employee must receive fixed and regular gross income not exceeding IDR10 million per month. This income threshold is assessed in the January 2026 tax period for employees who commenced work prior to 2026, or in the first month of employment for employees who begin working in 2026.

Third, the employee must not be receiving any other Article 21 income tax incentives borne by the government under the prevailing tax regulations.

Meanwhile, the eligible nonpermanent employees may also benefit from the incentive provided if they have a tax identification number and/or national identification number integrated with the DGT’s system, receive average wages of no more than IDR500 thousand per day for daily, weekly, unit-based, or piece-rate schemes, or no more than IDR10 million per month for monthly wages, and are not receiving other Article 21 income tax incentives borne by the government.

The gross income used as the basis for the assessment includes salaries, fixed allowances, and other similar remuneration that is fixed and regular, including income in the form of benefits in kind and/or fringe benefits. However, the income that has already been subject to final income tax under separate regulations is excluded from the scope of this incentive.

Mechanism for Granting and Reporting The Incentive

PMK 105/2025 stipulates that the Article 21 income tax borne by the government must be paid in cash by the employer to the employee at the time the income is paid. This obligation applies even where the employer provides an income tax allowance or bears the employee’s article 21 income tax liability. The payment of the Article 21 income tax borne by the government is not treated as taxable income for the employee.

The employers are also required to prepare withholding tax certificates for the granted incentive and report it in the monthly Article 21/26 income tax return. The reporting of the incentive utilization must be conducted for each tax period from January to December 2026. Amendments to the tax return may still be treated as valid reporting of the incentive as long as the submission is no later than 31 January 2027.

If the reporting or amendment is submitted after this deadline, the incentive is deemed not to be utilized, and the employer is required to remit the Article 21 income tax that has been withheld in accordance with the applicable tax regulations.

Supervision by the DGT

The DGT is authorized to conduct guidance, review, and compliance audits for taxpayers utilizing the Article 21 income tax borne by the government incentive. This underscores that the facility constitutes a tax subsidy funded by the state budget. Therefore, it must be applied accurately, administered properly, and fully compliant with prevailing laws and regulations.

Accordingly, the government emphasizes that the Article 21 income tax borne by the government incentive does not represent a general tax exemption, but rather a limited, conditional, and strictly supervised fiscal facility designed to support economic recovery and stability throughout 2026.

*) This article is the author's personal opinion and does not reflect the attitude of the agency where the author works.

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