- Imposition of Income Tax on the Disbursement of Old-Age Security Benefits (JHT)
Old-Age Security Benefit (“Jaminan Hari Tua” or “JHT”) is a social security program under which a lump-sum benefit is paid by the Social Security Administering Agency for Employment (Badan Penyelenggara Jaminan Sosial Ketenagakerjaan or BPJS Ketenagakerjaan) to eligible individuals upon the expiry of a prescribed period or upon the occurrence of other circumstances as stipulated by the applicable laws and regulations. JHT benefits may be paid to participants upon reaching retirement age, suffering permanent total disability, or upon the participant’s death.
However, the disbursement of JHT benefits is subject to Article 21 Income Tax (Pajak Penghasilan Pasal 21 or Article 21 Income Tax). The taxation of such benefits is specifically governed by Government Regulation of the Republic of Indonesia No. 68 of 2009 concerning the Article 21 Income Tax Rates Applicable to Income in the Form of Severance Pay, Pension Benefits, Old-Age Benefits (Tunjangan Hari Tua), and Old-Age Security Benefits (Jaminan Hari Tua) Paid in a Lump Sum (“GR No. 68 of 2009”).
Pursuant to GR No. 68 of 2009, Article 21 Income Tax is an income tax imposed on income derived in connection with employment, services, or other activities, regardless of its designation or form, received or accrued by a resident individual taxpayer, as provided under Chapter III, Article 4 of Law No. 7 of 2021 concerning the Harmonization of Tax Regulations (“Law No. 7 of 2021”). Income constituting the object of Article 21 Income Tax includes salaries, wages, honoraria, allowances, and other similar payments.
- Legal Basis for the Imposition of Income Tax on Old-Age Security Benefits (JHT)
The imposition of Article 21 Income Tax on JHT benefits is governed by, among others, the following laws and regulations:
- Law No. 7 of 1983 on Income Tax, as amended from time to time, most recently by Law No. 7 of 2021 on the Harmonization of Tax Regulations;
- Government Regulation No. 68 of 2009 on the Article 21 Income Tax Rates Applicable to Income in the Form of Severance Pay, Pension Benefits, Old-Age Benefits (Tunjangan Hari Tua), and Old-Age Security Benefits (Jaminan Hari Tua) Paid in a Lump Sum;
- Minister of Finance Regulation No. 16/PMK.03/2010 on the Procedures for Withholding Article 21 Income Tax on Severance Pay, Pension Benefits, Old-Age Benefits (Tunjangan Hari Tua), and Old-Age Security Benefits (Jaminan Hari Tua) Paid in a Lump Sum; and
- Government Regulation No. 46 of 2015 on the Administration of the Old-Age Security Program, as amended by Government Regulation No. 60 of 2015.
- When Is the Disbursement of Old-Age Security Benefits (JHT) Subject to Income Tax?
- Lump-Sum Disbursement of JHT Benefits
Pursuant to Article 2 paragraph (1) of Government Regulation No. 68 of 2009, JHT benefits paid in a lump sum are subject to withholding of Article 21 Income Tax, which constitutes a final withholding tax. A payment is deemed to have been made in a lump sum if the disbursement is completed within a period of no more than two calendar years.
The applicable final Article 21 Income Tax rates for lump-sum JHT disbursements, as stipulated under Article 5 of Government Regulation No. 68 of 2009, are as follows:
- 0% on gross income up to IDR 50,000,000; and
- 5% on the portion of gross income exceeding IDR 50,000,000.
Accordingly, participants receiving JHT benefits of up to IDR 50,000,000 are not subject to Article 21 Income Tax. Any amount exceeding such threshold is subject to final Article 21 Income Tax at the rate of 5%.
2. Conversely, where a participant elects to receive JHT benefits in instalments and the disbursements are made over a period exceeding two calendar years, such JHT benefits are no longer subject to final Article 21 Income Tax. Instead, they are subject to non-final Article 21 Income Tax at the progressive rates set forth in Chapter III, Article 17 of Law No. 7 of 2021, as follows:
- 5% on taxable income up to IDR 60,000,000;
- 15% on the portion of taxable income exceeding IDR 60,000,000 up to IDR 250,000,000;
- 25% on the portion of taxable income exceeding IDR 250,000,000 up to IDR 500,000,000;
- 30% on the portion of taxable income exceeding IDR 500,000,000 up to IDR 5,000,000,000; and
- 35% on the portion of taxable income exceeding IDR 5,000,000,000
The foregoing provisions likewise apply to participants who have previously withdrawn a partial JHT benefit amounting to 10% or 30% of their accrued JHT balance and subsequently withdraw the remaining balance after the lapse of more than two calendar years.
- Illustration of the Calculation of Income Tax on the Disbursement of JHT Benefits
By way of illustration, assume that an employee, Rani, receives JHT benefits amounting to IDR 300,000,000 upon retirement and elects to withdraw the entire amount in a single lump-sum payment. Such disbursement is subject to final Article 21 Income Tax, calculated as follows:
- 0% × IDR 50,000,000 = IDR 0; and
- 5% × IDR 250,000,000 = IDR 12,500,000
Accordingly, the amount of Article 21 Income Tax required to be withheld is IDR 12,500,000. However, if the JHT benefits of IDR 300,000,000 are disbursed in instalments, namely IDR 100,000,000 in February 2024, IDR 100,000,000 in March 2025, and IDR 100,000,000 in April 2026, the applicable tax treatment differs as follows:
- The first disbursement in February 2024 is subject to final Article 21 Income Tax of IDR 2,500,000.
- The second disbursement in March 2025 is made within the two-calendar-year period and therefore remains subject to final Article 21 Income Tax. Taking into account the cumulative amount of the previous disbursement, the tax payable on the second disbursement is IDR 5,000,000.
- The third disbursement in April 2026 is made after the expiry of the two-calendar-year period and is therefore subject to non-final Article 21 Income Tax at the progressive rates prescribed under Article 17 of the Income Tax Law, resulting in income tax payable in the amount of IDR 9,000,000.
Based on the foregoing illustration, the lump-sum disbursement of JHT benefits within the permitted period provides greater tax certainty and a simpler tax treatment, as such disbursement is subject to final Article 21 Income Tax at a maximum rate of 5%. Conversely, the disbursement of JHT benefits in instalments requires careful consideration, as disbursements made after the expiry of the two-calendar-year period may result in the application of progressive Article 17 Income Tax rates, which may lead to a higher tax burden.
Nevertheless, the selection of a disbursement method should be adjusted to the financial needs and circumstances of each participant, considering that the primary purpose of the JHT program is to provide economic protection for workers upon retirement or when they no longer receive employment income.
- Conclusion
The imposition of Article 21 Income Tax on the disbursement of JHT benefits is clearly regulated under the prevailing laws and regulations in Indonesia. The amount of tax payable depends on the method of disbursement of JHT benefits, whether made in a lump sum or in instalments. Therefore, participants are required to understand the applicable tax consequences prior to proceeding with the disbursement of their JHT benefits.
An understanding of the tax provisions applicable to JHT benefits is essential to enable participants to determine the appropriate disbursement method based on their financial needs and to obtain certainty regarding the tax obligations arising therefrom. Although JHT constitutes a form of social security protection for workers, the benefits received under the program remain subject to taxation in accordance with the applicable laws and regulations.
References
Law No. 7 of 1983 on Income Tax, as amended several times, most recently by Law No. 7 of 2021 on the Harmonization of Tax Regulations.
Law No. 40 of 2004 on the National Social Security System.
Law No. 24 of 2011 on the Social Security Administration Agency.
Author: Hotmaita Arta Purba S.H.
Editor: Sonya Margaretha, S.H.