Differences in Income Tax Articles 21 and 23 You Need to Know

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As an entrepreneur, paying taxes is an obligation because taxes are mandatory contributions that must be given by individuals or entities to the state. Through taxes, a country can carry out all its activities, which include infrastructure development, fuel subsidies (BBM), and paying civil servants. In other words, taxes are the main source of income for a country.

One tax that must be paid by employers is income tax. The Directorate General of Tax divides income tax into two, namely PPh 21 and PPh 23. Where, both are still related to employee income. Then, do you know what is the difference between PPh 21 and PPh 23? Learn more about both of them below.

Understanding PPh 21 & PPh 23

Income tax article 21 is a tax on income, it can be in the form of salary, wages, honorarium, benefits, and other payments in whatever name and form related to work, position, services, or activities carried out by domestic individuals. Whereas PPh 23 is intended for income on capital, delivery of services, or gifts, and awards.

The concept of PPh 21 & PPh 23

According to the Income Tax Law based on the status of income earning tax subject, the service transaction paid to the domestic Personal Taxpayers is included in the Article 21 income tax object. Including PPh 21 is a tax on income in the form of salary, wages, honorarium, benefits and other payments in the name and in any form with respect to work, or position, services and activities carried out by individuals who are domestic tax subjects.

Whereas, if the service transaction is paid to the domestic WP Agency, then including Article 23 PPh objects. Examples of tax subjects are personal WP employees who work at your company, while WP Agency is a supplier or vendor who sells his services to you as an entrepreneur. PPh21 is for employees, not employees, pension or severance recipients, members of the board of commissioners, former workers, and participants in activities. PPh 23 is for those who receive capital, services, gifts or awards.

Tax Rates
PPh 21 and PPh 23 tax rates are also different. Where, for employees with income of up to IDR 50 million per year, their income will be deducted by 5%, income of IDR 50-IDR 250 million per year will be taxed at 15%, income of IDR 250-500 million per year will be subject to 25% tax, and income more than IDR 500 million per year will be subject to 30% tax.

Whereas PPh 23 rates are applied to the value of the DPP (Basic Tax Imposition) or the gross amount of income. Gross amount is the amount of income paid, or due payment by a government agency, domestic tax subject, activity organizer, permanent establishment or representative of a foreign company. Below are some of the applicable PPh 23 rates.

A rate of 15% of the gross amount of dividends (distribution of personal dividends is subject to a final tax of 1%), and prizes and awards, other than withheld with income tax 21.
Rates of 2% of the gross amount of rent and other income related to the use of assets (except rent for land or buildings)
A tariff of 2% of the gross amount in return for technical services, management services, construction services, and consulting services.
Tariffs of 2% of the gross amount of other service fees described in Minister of Finance Regulation No. 141 / PMK.03 / 2015
Tax reporting
Although deducted monthly by the company, Article 21 of Income Tax (PPh 21) is reported annually, with a maximum reporting limit at the end of March each year. For example, PPh 21 reporting for 2017 income, then after getting proof of deduction, employees must immediately report it in March 2018 maximum by filling the PPh 21 tax return. While for PPh 23, it must be reported monthly by the cutting party by filling in the tax return period Article 23 , and no later than reported every 20th, a month after the month payable PPh 23.