Understanding PPH 21 (Indonesia)

Pajak Penghasilan Pasal 21. Income Tax on Personal Earnings. Indonesia.

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Written by Nicholas
Updated over a week ago

PPH21 is an integral aspect of Indonesia's tax system, particularly relevant for payroll processing.

It refers to the income tax on personal earnings (Pajak Penghasilan Pasal 21). Understanding how to calculate PPH21 is essential for employers and employees in Indonesia to ensure compliance with the country's tax laws.

What is PPH 21?

PPH21 is the income tax levied on an employee's earnings in Indonesia. It applies to salaries, wages, and other forms of compensation.

How is PPH 21 calculated?

There are three primary methods used to calculate PPH21:

1. Net Method:

  • Taxes are calculated based on the net income after deducting non-taxable income components.

2. Gross Method:

  • The tax is calculated on the total gross income without deductions.

3. Gross-Up Method:

  • This method is used when the employer bears the tax burden (borne by employer). The tax is calculated such that the net income after tax equals the agreed gross salary

Application in Payroll

Accurate calculation of PPH21 is a critical component of the payroll process in Indonesia.

Employers must ensure proper calculation and deduction of this tax from their employees' salaries to comply with Indonesian tax regulations

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