Indonesia's Tax System and Structure in 2025

Indonesia operates a dual-tier tax system comprising central and regional taxes. While the authority to legislate and collect taxes is primarily centralized under the national government, local governments retain limited autonomy to establish certain regional levies. The major taxes include corporate income tax, personal income tax, withholding tax, value-added tax (VAT), luxury goods sales tax, property tax, stamp duty, entertainment tax, advertising tax, groundwater usage tax, motor vehicle tax, and other local-specific taxes. Regional tax regulations may vary across provinces and municipalities. Indonesia applies a territorial taxation principle but imposes worldwide taxation on resident taxpayers.

Tax Administration Authority

The Directorate General of Taxes (DGT), operating under the Ministry of Finance, oversees tax collection and administration. It consists of a central headquarters and multiple operational offices throughout the country, ensuring nationwide enforcement and taxpayer services.

Legal Framework for Taxation

The core legal instruments governing taxation in Indonesia include the General Provisions and Tax Procedures Law (Law No. 28 of 2007), the Income Tax Law (Law No. 36 of 2008), and the VAT Law (Law No. 42 of 2009). To enhance investment attractiveness, the government enacted the Omnibus Law on Job Creation (Law No. 11 of 2020), which updated existing tax laws and introduced new incentives for foreign investors.

In line with this reform, the Ministry of Finance issued Regulation No. 96 and No. 130 of 2020, outlining tax holidays, subsidies, and import duty exemptions—particularly for enterprises operating in special economic zones (SEZs). These benefits can be applied for through the Investment Coordinating Board (BKPM). Investors must fulfill their capital commitment within one year of approval to maintain eligibility.

Additionally, Ministry of Finance Regulation No. 11 of 2020 provides preferential corporate income tax rates for businesses in designated sectors and regions, reinforcing targeted economic development.

Main Taxes and Rates in Indonesia

Personal Income Tax (PIT)

Under the revised Income Tax Law (No. 36/2008), the top marginal rate was reduced from 35% to 30%, effective 2025. The progressive structure includes four brackets: 5% for annual income up to IDR 50 million; 15% for income between IDR 50 million and IDR 250 million; 25% for IDR 250 million to IDR 500 million; and 30% above IDR 500 million. Dividend income is subject to a final withholding tax of 10%. However, if reinvested in Indonesia within three years, the rate drops to 0%, encouraging capital retention.

Corporate Income Tax (CIT)

Prior to 2020, the standard CIT rate was 25%. A transitional rate of 22% applied from 2020 to 2021, now fully phased into a permanent 22% rate by 2025 under Government Regulation No. 1 of 2020. Listed companies meeting specific criteria qualify for an additional 3% reduction, effectively paying 19%.

Small and micro enterprises (SMEs) benefit from special schemes. Micro and small limited liability companies with annual revenue below IDR 4.8 billion pay a flat 0.5% of turnover during their first three fiscal years. Afterward, they enter the standard system but receive a 50% reduction on payable CIT. Medium-sized firms enjoy a 50% reduction on profits up to IDR 4.8 billion, with a tiered relief model extending up to IDR 50 billion, beyond which full rates apply.

Final Corporate Income Tax

Certain sectors are subject to a final CIT based on gross revenue rather than net profit, eliminating further tax obligations. Industry-specific rates include engineering services (2%-6%, depending on license type), maritime transport (1.2%), air transport (1.8%), real estate transactions (2.5%), and leasing (10%). This simplifies compliance and avoids double taxation.

Value-Added Tax (VAT)

The Harmonization of Taxation Laws Act, passed in October 2021, established a unified VAT framework. The standard rate increased to 11% effective April 1, 2022, and is scheduled to rise to 12% by January 1, 2025. Essential goods and services—particularly those related to healthcare and basic community needs—are exempt from VAT, supporting social welfare goals.

Luxury Goods Sales Tax (LGST)

On top of VAT, Indonesia imposes LGST on domestically sold or imported luxury items classified under specific categories. Exports are not subject to this tax. The tax base aligns with VAT—sales price, import value, or export price—and is collected only once, at the production or import stage. Rates vary widely depending on the product category, reflecting environmental, social, and consumption policies.

Stamp Duty

Regulation No. 10 of 2020 modernized stamp duty, setting a fixed fee of IDR 10,000 per document. Documents involving civil legal acts, court-admissible evidence, or agreements exceeding IDR 5 million in value require electronic or physical stamping. Digital transactions are increasingly covered under this regime, enhancing transparency.

Digital Services Tax

In May 2021, Indonesia began taxing digital services provided by foreign companies. An 11% VAT (increased from initial 10%) applies to platforms such as Netflix, Zoom, Shopee, Epic Games, Hotels.com, and Alibaba Cloud. As of 2025, over 75 international digital providers are registered and actively collecting VAT, closing loopholes in cross-border e-commerce taxation.

Carbon Tax

After delays due to infrastructure readiness, Indonesia officially launched its carbon tax in 2025. Based on amendments to Law No. 6 of 1983, the tax targets emissions from coal-fired power plants and high-carbon industries. The initial rate is IDR 75 per kilogram of CO₂ equivalent (IDR 75,000 per ton), among the highest in Southeast Asia. Revenue will fund green energy projects and climate resilience programs.

Taxation of Multinational Enterprises

Indonesia supports global tax reform under the OECD/G20 Inclusive Framework. It has endorsed a minimum effective corporate tax rate of 15% for large multinational corporations operating within its jurisdiction. This ensures fairer distribution of taxing rights and prevents profit shifting. Implementation is expected by 2025–2026, aligned with international timelines.

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