By Kusnandar & Co., Attorneys At Law – Jakarta, Indonesia
The decision by Finance Minister
Purbaya Yudhi to exempt employees earning up to Rp 10 million per month from
Article 21 Income Tax throughout 2026 signals a clear attempt by the state to
stand with middle- and lower-income workers. At a time when global economic
uncertainty persists and domestic recovery remains uneven, the policy reflects
the government’s effort to safeguard purchasing power while maintaining social
and economic stability.
Enshrined in Ministry of Finance
Regulation (PMK) No. 105 of 2025, the policy places the burden of Article 21
income tax on the government for workers in five designated sectors: footwear,
textiles and apparel, furniture, leather and related products, and tourism.
These sectors are not chosen at random. They are labor-intensive industries
that sit at the intersection of vulnerability and productivity—characterized by
relatively modest wages, exposure to global demand shocks, and fluctuating
business conditions.
By absorbing the tax obligation, the
government effectively increases workers’ net income without imposing
additional costs on employers. The mechanism—whereby the tax withheld is
returned in cash to employees—ensures that the benefit is tangible rather than
merely accounting-based. Given that household consumption remains the backbone
of Indonesia’s economic growth, the multiplier effect of such a policy should
not be underestimated.
Yet every fiscal stimulus carries
trade-offs. The key question is not only who benefits, but also who is left
out. While the Rp 10 million monthly income threshold appears inclusive, the
sector-specific nature of the incentive raises concerns over horizontal equity.
Workers with similar income levels and vulnerabilities in other sectors—such as
logistics, the creative economy, or urban informal services—are excluded,
despite facing comparable economic pressures.
Administrative requirements,
including possession of a Taxpayer Identification Number (NPWP) or a National
Identification Number (NIK) integrated with the Directorate General of Taxes’
system, also deserve attention. While these requirements align with the
government’s long-term goal of strengthening tax administration and data
integration, they may pose practical challenges. Non-permanent and freelance
workers—the very groups this policy seeks to support—often operate in
administrative gray areas. Without adequate outreach and assistance, the
incentive risks being underutilized.
The policy further underscores the
government’s evolving view of fiscal policy as a stabilization tool rather than
merely a revenue-collection instrument. In certain circumstances, foregone
revenue can be justified to prevent deeper economic contraction and social
strain. The challenge lies in ensuring that such measures remain temporary,
targeted, and subject to rigorous evaluation.
More fundamentally, tax relief should
not become a substitute for deeper structural reforms. Expanding quality
employment, strengthening protections for non-formal workers, and reforming
wage-setting mechanisms remain essential. Fiscal stimulus can act as a
buffer—it eases the burden—but it does not address the root causes of economic
vulnerability.
Ultimately, the 2026 Article 21 tax
exemption deserves recognition as a responsive and empathetic policy choice. It
represents a tangible presence of the state in easing workers’ burdens. Its
true test, however, will lie in consistent implementation, precise targeting,
and the government’s willingness to complement short-term relief with long-term
structural solutions.
K&C - January 8, 2026
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