The taxation principles in Indonesia are set out by the Constitution of the Republic of Indonesia of 1945. Article 23(2) of the Constitution stipulates that every tax needed by the state must be arranged through the law. Consequently, no tax can be imposed except through law. The constitution embodies the principle that taxes cannot be imposed at will by the government without the approval of the Parliament. In practice, however, tax collection could be hampered if tax regulations could only be issued by the Parliament. Therefore Indonesian tax laws allow delegation of legislative powers to the government and its agencies.

Indonesian income tax is governed by Law Number 7 of 1983, as amended by Law Number 7 of 1991, Law Number 10 of 1994 and Law Number 17 of 2000, [the Income Tax Law). The Income Tax Law covers both companies and individuals.


Indonesian income tax laws and regulations that are applicable in general to its taxpayers are basically the Income Tax Law and the other relevant laws on procedures and settlement on tax disputes. To supplement the Income Tax Law (for the purpose of giving adequate guidance), implementing regulations are issued by the central government and its agencies, coordinated at the practice level by the Directorate General of Taxes and Tax Service Offices (Kantor Pelayanan Pajak) .


Under the Income Tax Law, tax subjects are defined as:

· [i] individuals and [ii] undivided estates;

· entities (including limited-liability companies); and

· permanent establishments.

Indonesia-resident tax subjects are taxed on their worldwide income. Non-resident Indonesian tax subjects are taxed only on Indonesia-source income, including income Income Tax attributable to permanent establishments in Indonesia.

‘Income’ is defined as any economic benefit received or earned by the taxpayer from within, as well as outside, Indonesia which can be used for consumption or to increase the wealth of the taxpayer concerned, in whatever names and forms .

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