In Indonesia, individuals or entities that meet certain conditions must register for a tax identification number (Nomor Pokok Wajib Pajak (NPWP) to fulfill their tax rights and obligations. Members of a business group are taxed separately as there are no exemptions for business groups.

What are the taxes in Indonesia?

The taxes in Indonesia include the following:

• Income Tax (Pajak Penghasilan): This is the main income tax for individuals and businesses.
• Value Added Tax (Pajak Pertambahan Nilai (VAT)) and Luxury Sales Tax (Pajak Penjualan atas Barang Mewah (LST)): These two taxes are consumption taxes, which are mainly levied on the sale of goods and services.
• Land and Building Tax (Pajak Bumi dan Bangunan): This is a tax on real estate.
• Carbon Tax (Pajak Karbon): This is an environmental tax, mainly on carbon emissions.
• Regional Taxes and Retribusi (Pajak Daerah dan Retribusi Daerah): This is a tax imposed by local governments in Indonesia.

It is important to note that Indonesian tax residents are taxed on their worldwide income, but there are some exceptions, such as qualifying foreign dividends and individual tax residents.

How are Indonesian tax laws enforced?

Indonesia adopts a self-assessment system, which means that you need to calculate and pay the taxes you owe yourself. The Directorate General of Taxation (DGT) will ensure tax compliance through tax audits. If taxes are found to be unpaid or insufficient, the DGT will issue the corresponding tax assessment letters, such as the Underpaid Tax Assessment SKPKB) and the Additional Underpaid Tax Assessment Letter (SKPKBT).

To ensure your cooperation and transparency, the tax authorities have the right to send you a letter requesting data and explanations. You usually need to respond within 14 days. If you fail to respond or the response is insufficient, the tax authorities may escalate to a formal tax audit procedure.