The Indonesian government has continued to provide the incentive of Article 21 income tax borne by the government (PPh Pasal 21 DTP) for fiscal year 2026 as part of its economic stimulus policy. The incentive applies to certain types of employment income and is effective for the tax periods from January 2026 to December 2026. Under Minister of Finance Regulation No. 105 of 2025, which was enacted on December 29 2025 and entered into force two days later, the scope of eligible Business Field Classification (Klasifikasi Lapangan Usaha, or KLU) codes has been expanded, allowing a broader range of businesses to benefit from the incentive.
Employers eligible to utilise the incentive must operate in the following industries:
Footwear;
Textiles and garments;
Furniture;
Leather and leather goods; or
Tourism.
In addition, the employer must possess a principal KLU that is included in the list set out in the appendix to the relevant minister of finance regulation, which comprises 133 eligible Business Field Classification codes. The qualifying KLU must be recorded in the Directorate General of Tax’s (DGT’s) administrative system as of January 1 2026 or, for newly registered taxpayers, as of the date of registration.
The incentive is granted to permanent employees and certain non-permanent employees who receive income from an eligible employer and meet the prescribed requirements. Eligible employees must have a tax identification number or single identification number integrated into the DGT system. Permanent employees qualify if they receive fixed and regular gross income of not more than IDR 10 million per month, while non-permanent employees qualify if they receive an average daily wage of no more than IDR 500,000 or a monthly wage of not more than IDR 10 million, provided they are not receiving other government-borne Article 21 tax incentives under separate regulations.
Employers utilising the incentive are required to properly calculate, apply, and report the government-borne Article 21 income tax through the monthly Article 21 tax returns for the January to December 2026 tax periods. The submission or any amendment of the relevant monthly tax returns must be completed no later than January 31 2027. Failure to comply with this deadline will result in the incentive being deemed not granted, and the employer will be obligated to remit the Article 21 income tax that should have been withheld to the state treasury.
New regulation on risk-based taxpayer compliance supervision
The Indonesian Ministry of Finance has issued Minister of Finance Regulation No. 111 of 2025 concerning Supervision of Taxpayer Compliance (PMK-111). The regulation serves as the principal legal basis for the DGT in conducting taxpayer compliance supervision outside the scope of formal tax audits, and provides a clear guideline on the timeline for responding to a Request for Explanation of Data and/or Information (SP2DK). PMK-111 is intended to strengthen voluntary compliance within Indonesia’s self-assessment system by providing a structured and standardised supervision framework.
PMK-111 defines the scope of compliance supervision to include:
Supervision of registered taxpayers;
Supervision of unregistered taxpayers; and
Territorial supervision.
The regulation applies to a broad range of taxes administered by the DGT, including income tax, VAT, luxury goods sales tax, stamp duty, land and building tax, sales tax, and carbon tax, as well as other taxes in accordance with prevailing laws and regulations. As such, the regulation significantly expands the reach of administrative compliance monitoring across multiple tax types.
Under the regulation, taxpayers are required to submit a response to an SP2DK within 14 days. Taxpayers may request an extension of up to seven additional days after the original deadline by submitting a written notice of extension to the relevant tax office. Explanations may be submitted through various media, including:
The taxpayer account;
Postal or courier services;
Direct submission during a field visit;
Submission to the issuing tax office or its supervised service units; and
Online media such as videoconferences.
PMK-111 also authorises the DGT to conduct data collection activities as part of compliance supervision, which may include:
Observation of economic activities;
Interviews;
Geotagging of parcels or business locations; and
Image capture through on-site methods.
Where an SP2DK process has been concluded, the DGT will issue a Notification Letter on the Progress of the Implementation of the Request for Explanation of Data and/or Information (SP3 P2DK).
The regulation came into effect on January 1 2026.
New regulation on guidelines for mutual agreement procedures
The DGT has issued Circular Letter No. SE-18/PJ/2025, which provides updated guidelines for the implementation of mutual agreement procedures (MAPs). This circular letter replaces the previous guidelines under SE-49/PJ/2021 and has been issued to align the MAP administrative framework with Minister of Finance Regulation No. 172 of 2023. The regulation aims to enhance legal certainty, procedural clarity, and alignment with international tax treaty standards.
Under SE-18/PJ/2025, MAP requests may be initiated by several parties. Domestic taxpayers (Wajib Pajak Dalam Negeri) may submit MAP requests in cases involving double taxation arising from transfer pricing adjustments, profit attribution, permanent establishment issues, or other tax adjustments, as well as withholding or collection that is inconsistent with applicable tax treaties. MAP requests may also be submitted in relation to disputes over domestic taxpayer status determined by treaty partners or discriminatory tax treatment. In addition, Indonesian citizens may initiate MAP requests if they are subject to discriminatory treatment by a treaty partner that violates the non-discrimination principle under the relevant tax treaty.
The circular letter further provides that the DGT may initiate a MAP on its own initiative, either to follow up on a taxpayer’s request or in connection with a bilateral or multilateral advance pricing agreement process. In addition, the tax authorities of treaty partners may submit MAP requests directly to the DGT through the Directorate of International Taxation. This framework reflects Indonesia’s commitment to international cooperation and effective dispute resolution under tax treaties.
SE-18/PJ/2025 also sets out the procedures for initial assessment and negotiation. The assessment team is required to examine the completeness of requirements and the material suitability of the request within one month of receipt. If the request meets the applicable criteria, the team will issue a notice confirming that the MAP process may proceed and will forward the MAP request to the treaty partner within one month. During the negotiation stage, the team will conduct correspondence, substantive analysis, and meetings with the treaty partner’s tax authority, with the MAP negotiation process potentially running for up to 24 months.
The outcome of the MAP, whether resulting in agreement or non-agreement, is documented in a mutual agreement record, and where an agreement is reached, the director of international taxation will issue a notification letter within 14 calendar days from the date of the mutual agreement.
