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The Implementation of Average Effective Rate
Income Tax Article 21 (PPh 21)

Written by Muhammad Hilmi on 11/07/2024
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

Introduction

The implementation of the Average Effective Rate (AER) for Income Tax Article 21 has been in effect since January 1, 2024. This initiative aims to simplify the complex withholding scheme. It is essential to understand the implications and benefits of this new scheme for individual taxpayers.

Definition

Income Tax Article 21 is a tax on various forms of income, including salaries, wages, honoraria, and allowances received by domestic individual taxpayers. On the other hand, the Average Effective Rate (AER) is a recalculated withholding scheme introduced for each tax during the period. This method aims to streamline the calculation process, providing ease and efficiency for taxpayers.

The Importance

The introduction of the Average Effective Rate (AER) in Income Tax Article 21 addresses the complexity of withholding scheme. By streamlining the process, AER reduces administrative costs and enhances efficiency in tax management. Furthermore, it ensures greater compliance with tax regulations and fosters transparency in the taxation system.

The Best Time to Act

Implementing the Average Effective Rate (AER) for Income Tax Article 21 is crucial for ensuring smooth tax operations. It is best done at the beginning of each tax period to streamline the calculation process for taxpayers and tax authorities alike. By adopting AER early in the tax year, individuals can benefit from simplified calculations and avoid potential discrepancies in tax withholding.

Benefits

The adoption of the Average Effective Rate (AER) brings several benefits to individual taxpayers and tax authorities.

Reducing the complexity of tax calculations, thereby minimizing errors and discrepancies.
Enhancing administrative efficiency, saving time and resources for both taxpayers and tax authorities.
Promoting greater compliance with tax regulations and fosters transparency in the taxation system.

How to/The Process

To implement the Average Effective Rate (AER) for Income Tax Article 21, taxpayers need to understand the categorization and calculation methods involved. There are two main categories of AER: Monthly Effective Rate and Daily Effective Rate.

The Monthly Effective Rate is determined based on the non-taxable income of the taxpayer and gross monthly income. There are 3 categories on Non-taxable income.
1. Category A: Unmarried with no dependents, unmarried with 1 dependent, and married without dependents.
2. Category B: Unmarried with 2 dependents, unmarried with 3 dependents, married with 1 dependent, married with 2 dependents.
3. Category C: Married with 3 dependents.
  The effective rate increases according to the gross monthly income layer. The minimum rate for each category is 0% and the maximum rate is 34%.Calculation = Gross Income x % AER (A/B/C)
Daily Effective Rate applies specifically to non-permanent employees based on their daily earnings. Calculations involve multiplying the gross income by the applicable AER percentage for each category. There are 2 Daily Effective Rates:
1. Income up to IDR 450,000 is subject to a rate of 0%.
2. Income above IDR 450,000 up to IDR 2,500,000 is subject to a rate of 0.5%.Calculation = Gross Income x %AER

How We Can Help

At Putranto Alliance, we offer comprehensive tax reporting services to assist individuals and corporations in complying with Income Tax Article 21 regulations. Our experienced professionals ensure accurate calculations and timely submissions, allowing clients to focus on their core business activities. By entrusting us with tax compliance matters, individuals and companies can mitigate risks and ensure adherence to applicable laws and regulations.

We offer a comprehensive suite of services, including: 

Payroll Services: At Putranto Alliance, we manage employee payroll processes, ensuring accurate wage calculations, tax withholdings, and timely payments to comply with Income Tax Article 21 regulations.
Administrative Support: We streamline administrative tasks such as record-keeping, documentation, and liaising with tax authorities, allowing clients to focus on their core business activities.
Tax Compliance Services: Our team ensures adherence to tax laws through accurate tax return preparation and timely submissions, helping clients mitigate risks and comply with Income Tax Article 21.
Tax Planning and Advisory Services: We offer strategic advice to optimize tax liabilities, leverage tax benefits, and develop long-term tax strategies, ensuring clients maximize financial advantages while adhering to regulations.

FAQs

Who is responsible for deducting Income Tax Article 21?

Withholding Income Tax Article 21 is mandatory for employers, including individuals and entities, government agencies, pension funds, and activity organizers.

What happens if an employee resigns before the end of the tax period?

If an employee resigns before December, Income Tax Article 21 calculations for that month use the general rate.

What is the limit of non-taxable income?

The limit of non-taxable income varies depending on the status of the taxpayer, with additional allowances for married taxpayers and dependents.

What are the specific steps involved in calculating the Monthly Effective Rate for Income Tax Article 21?

To calculate the Monthly Effective Rate:

Identify the taxpayer’s non-taxable income category (A, B, or C).
Determine the gross monthly income.
Apply the corresponding AER percentage based on the income layer and category.
Use the formula: Calculation = Gross Income x % AER (A/B/C).

For example:
Mr. R is a permanent employee who works at PT Surya and earns a salary of IDR 6,200,000 per month (including BPJS). Mr. R is married and has 1 son.

Based on Mr. R’s non-taxable income status is Married and has 1 dependent. Then Mr. R’s effective rate category is Category B. with an income of IDR 6,200,000, the rate charged on Income Tax Article 21 is 0.25%.

Income = IDR 6,200,000

Rate = 0.25%

Income Tax Article 21: IDR 6,200,000 x 0.25% = IDR 15,500

Income Tax Article 21 withheld by Mr. R on January – November is IDR 15,500</div)

Where can Income Tax Article 21 be reported?

Tax Article 21 can be reported using e-Bupot 21/26, which is accessible on the DJP Online website.

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The Implementation of Average Effective Rate Income Tax Article 21 (PPh 21)

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