546

MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

THE APPLICATION OF SIMPLICITY CONCEPT OF TAXATION

ON FINAL INCOME TAX REGIME IN INDONESIA∗
Adrianto Dwi Nugroho∗∗

Department of Tax Law, Faculty of Law Universitas Gadjah Mada, Yogyakarta

Jalan Sosio Yustisia No. 1 Bulaksumur, Sleman, D.I. Yogyakarta 55281

Abstract
The Final Withholding Tax (hereinafter, FWHT) requires certain taxable income to be taxed in accordance
with special rules that differ from the calculation of income taxes in general, and thus, disregarding the
payer’s ability to pay. One concept upheld in justifying FWHT is simplicity. However, the concept has
not been defined clearly in FWHT regime in Indonesia. The study shows that conceptually, there are
two definitions of simplicity in understanding its manifestation in FWHT regime in Indonesia. However,
these definitions have deviated from the Pay As You Earn (PAYE) concept, which provides basis for any
withholding system in taxation.
Keywords: simplicity, income tax, final withholding tax.

Intisari
Pajak Penghasilan (selanjutnya, PPh) Final menghendaki objek PPh tertentu dipungut pajaknya berdasarkan
penghitungan yang berbeda dengan penghitungan PPh umum, sehingga tidak dihitung menurut kemampuan
membayar dari Wajib Pajak tersebut. Salah satu konsep yang dapat menjustifikasi penyimpangan tersebut
adalah kesederhanaan dalam pemungutan pajak. Namun demikian, konsep ini tidak memiliki pemaknaan
yang jelas dalam pemungutan PPh Final di Indonesia. Hasil penelitian menunjukkan bahwa secara
konseptual terdapat beberapa pemaknaan konsep kesederhanaan yang dapat digunakan dalam memahami
rezim PPh Final di Indonesia. Namun demikian, makna konsep kesederhanaan ini menyimpang dari konsep
Pay As You Earn, yang mendasari rezim PPh Pemotongan, termasuk yang bersifat final.
Kata Kunci: kesederhanaan, PPh, PPh final.

Pokok Muatan
A. Introduction ........................................................................................................................................ 547
B. Methodology of Research .................................................................................................................. 548
C. Research Result and Discussion ........................................................................................................ 548
1. The Interpretation of Simplicity Concept in Final Income Taxation in Indonesia ....................... 548
2. The Interpretation of Simplicity Concept in Final Income Taxation Based on the Best Practice
of Regulatory in Singapore ........................................................................................................... 553
3. Recommendation of Final Income Tax Regulatory in Indonesia ................................................. 555
C. Conclusion ........................................................................................................................................ 558

∗
Research Results of Research and Community Service Department Faculty of Law Universitas Gadjah Mada 2014.
∗∗
Correspondence address: adrianto.dwi@mail.ugm.ac.id
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 547

A. Introduction Income Tax Act). The Final Income Tax regime

According to proportion that a tax is a has existed since the tax reformation occurred, the
consequence of social life, thus, the increasing object was the income of interest and time deposits.3
number of citizen has caused the increasing number However, there was the fourth amendment of
of tax that has been received by State, as the tax Income Tax Act regime explicitly called as Income
controller and tax collector. However, the increasing Tax Final, with the total income objects which
number of society has affected the increasing of are regulated become four types of income and
social economic activity, either qualitatively or other certain incomes, including that has been set
quantitatively, thus, the government has a new forth in Government Regulation Number 46 of
potential which occurs from the commercial 2013 regarding the Income Tax on Income from
transaction which characterized the economic the Accepted or Acquired by Taxpayer who Has
activity. Particular Gross Turnover.
The higher of receiving tax which has The Final Income Tax has different
been targeted to government through years it was characteristics with the Income Tax in general as
predicted to empower for collecting the tax with the stipulated in Income Tax Act. The main characteristic
expense that is as low as possible for the revenue is that a turning point of The Final Income Taxation
that is as high as possible. A motivation that is is on the object, that are the incomes coming from
prima facie is valid. Yet, in its development, the certain transaction. This characteristic of course
main efficiency in taxation cannot be in line with contradicts with the main characteristic of Income
the fulfilment of the rights of taxpayers (hereinafter Tax as a tax that has a turning point of taxation to
TP) and the realization of justice between the TPs. its subject. Moreover, the income that becomes the
For example is that the regulation regarding the object of Final Income Tax is the same with the
examination of the applicable current tax, there is a income which becomes the object of general Income
possibility to prioritize the examination towards TP Tax. The income such as interest, business profits,
with certain categories, and ignore the examination and any advantages due to capital gain constitutes an
towards the other TPs categories. Another example income that is an object of general Income Tax and
is within a regulation concerning the Income final Income Tax. Yet, the underlying transaction
Taxation (hereinafter IT) as set forth in Government becomes the determinants on whether such income
Regulation Number 46 of 2013 regarding the would be counted using the requirements laid down
Income Tax on Income from the Accepted or in Income Tax Act or the requirements set forth in
Acquired by Taxpayer who Has Particular Gross Government Regulation regarding the Final Income
Turnover, which has been proven contradicting with Taxation towards particular income.
the justice principle and economic principle from Furthermore, since the Final Income Tax
taxation,1 there is a possibility that TP who suffers a focuses on the condition of its object and is intended
loss remains to pay the Income Tax.2 for being differently governed with the provision
The Income Taxation is included the Final stipulated in Income Tax Act, so that the proportion
Income Taxation as laid down in Article 4(2) Act of Final Income Tax waived the ability to pay from
Number 7 of 1983 regarding the Income Tax as TP is a logic consequence. The common reason is to
amended with Act Number 36 of 2008 (hereinafter justify the Final Income Taxation is the simplicity

1
Irine Handika, 2014, Rasionalisasi Pemungutan Pajak Penghasilan Final terhadap Usaha Mikro, Kecil dan Menengah, Research Report,
Faculty of Law Universitas Gadjah Mada, Yogyakarta, p. 59.
2
See the Article 8 point (b) and (c) on Government Regulation Number 46 of 2013 the Income Tax on Income from the Accepted or Acquired
by Taxpayer who Has Particular Gross Turnover.
3
See Article 4 point (2) Act Number 7 of 1983 regarding the Income Tax (State Gazette of Republic of Indonesia of 1983 Number 50,
Supplement to State Gazette of Republic Indonesia Number 3263).
548 MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

in taxation. This matter set forth in the elucidation Thirdly, that are the recommendations that can be
Article 4(2) of Income Tax Act in which one the provided in refining the Final Income Tax regime in
consideration in regulating the Final Income Tax is Indonesia?
the simplicity in taxation. From the aforementioned,
thus, the researcher intended to conduct a research B. Research Method
regarding the implementation of simplicity in The research concerning “The Implementation
Final Income Taxation. The simplicity in Final of Simplicity Concept in Final Income Taxation
Income Taxation tends to be constituted as an ease Regime in Indonesia” is a normative legal
in conducting the calculation tax by TP on certain research. According to Istanto,4 a legal research is
transactions, and as an ease in obtaining tax revenue a research helped the development of legal science
by tax officials. Further, certain transaction that is in revealing the truth of law. Besides, this research
chosen as the object of Final Income Tax tended used comparative legal studies, that is a research
to not having a justification as the implementation conducted for understanding the similarities and
of Final Income Tax in other countries such as differences of regulation that is applicable in every
Singapore who has cross-border transaction. country or legal system, further there will be a
Before conducting research, the researcher unification of law of, vice versa, creation of law
submits some basic proportions. Firstly, Final among legal systems.5
Income Tax constitutes an antithesis of general
Income Tax. This means that Final Income Tax C. Research Result and Discussion
constitutes objective tax, so that it has nothing to 1. The Interpretation of Simplicity Concept
do with the ability of TP, it is reflected from the in Final Income Taxation in Indonesia
application of proportional tariff and gross income Based on Bahasa Indonesia Dictionary,
in its calculation. Secondly, the Final Income Tax the “sederhana” (simple) means not having
should be imposed to passive income, since it is so many details (difficulties and so on); not
only towards the passive income that the removal of so many accessories; clear, whereas the word
deductible expenses in calculating the net income “kesederhanaan” (simplicity) means a thing (a
is justified, considering that its total is too low or condition, adjective) simple.6 Such definition
none or unknown. Thirdly, the Final Income Tax refers to a condition in which a subject or certain
should not be applied in transaction that does not object that does not require there is a subject who
constitute as a cross-border transaction, since there enjoys such simplicity. Meanwhile, in Tax Law,
is no timing factor and an ease factor in transaction the simplicity can be said as a principle, yet, as
that needs to be achieved in domestic transaction. a concept succeeded from the main principle of
Based on the background that has been taxation, that is the convenience of payment and
elaborated above, it can be formulated that the economy of collection which has been postulated
issues in this research as follows: Firstly, how the by Adam Smith and became two canons from the
interpretation of simplicity concept in Final Income four canons of taxations. Adam Smith stated that
Taxation in Indonesia? Secondly, how should “Every tax ought to be levied at the time of in the
the interpretation of simplicity concept in Final manner in which it is most likely to be convenient
Income Taxation based on the best practice of the for the contributor to pay it”.7 Whereas, Adam
management of Final Income Tax in Singapore? Smith defined economy of collection as “Every tax

4
F. Sugeng Istanto, 2007, Penelitian Hukum, Ganda, Yogyakarta, p. 29.
5
Ibid., p. 130.
6
Language Center of National Education Department, “KBBI dalam Jaringan”, http://bahasa.kemdiknas.go.id/kbbi/index.php, accessed on 11
April 2014.
7
Citation from Adam Smith concerning canon of convenience in NN, “Economics Concepts, Canons/Principles of Taxation by Adam Smith”,
http://economicsconcepts.com/canons_of_taxation.htm, accessed on 11 December 2011.
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 549

is to ne so contrived as both to take out and keep certain period of time.12 The last but not least, for the
out of the pockets of the people as little as possible employees, this method is beneficial as well since
over and above what it brings into public treasury for those who has income up until certain amount
of the state”.8 Some scientist, then postulated some can be released from the obligation to report.13 From
approaches which can explain the definition and the the tax revenue pint of view, in some countries, this
standing of simplicity concept in taxation. Gordon9 method ensures that 70% of state revenue from the
put forward that there is an equality treatment among individual income tax.14
the TP who can reduce the potential tax avoidance. From the aforementioned, it seems that
Meanwhile, IBFD10 thought that is a possibility the PAYE method realize the simplicity concept
of disobedience against the similarity principle in in taxation perfectly. Besides, the simplicity is
taxation, if the fulfillment of its principle cannot be defined as a concept that is measured and evident
achieved. its advantage for all parties in taxation, that are
The author tried to answer the first research tax officials, taxpayers, and tax withholders. For
question by way of elaborating the method of Pay tax officials, such advantage has to be manifestly
As You Earn (PAYE). The method of PAYE put giving contributions in the fulfillment of budgetary
forward the simplicity in income taxation towards function such as the certainty of incoming tax into
the employees salary by way of withholding the state treasury within years, and regulatory function
tax when the income is received. In Indonesia, for tax such as the decreasing expenses of obedience
this concept was applied in Income Taxation as a result of narrowing of an object supervision. For
Article 21. For tax officials, PAYE can alleviate the taxpayers, such advantage is its reduction of liability
administrative burden for the tax examiner towards to pay the tax, primarily an obligation to report, even
a tax report obligation (in Indonesia, the obligation though for certain types of taxpayers need to be
of taxpayer for fulfilling the Annual Notification adjusted. At last, for the tax cutters, such advantage
Letter, particularly due to the total of Annual can be no any additional administration burden
Notification Letter that has to be checked can be with regards to the implementation of corporate
substantially reduced and the assessment object financial accounting system, and in certain regime
can be focused on whether all the salary payment such advantage can be a financial advantage such
has passed through the tax withholding process by as interest from the tax deducted and withheld for
the employers, and whether the total that has been certain period of time. Based on literature studies
computed by the employers is already correct.11 conducted by the author, the concept of simplicity
For the employers, this method does not give any in taxation on Final Income Tax in Indonesia
new administrative burden, since without any firstly introduced in 2000 through the enactment
withholding tax, the employers has an obligation of Government Regulation Number 132 of 20000
to conduct the other withholdings, such as pension regarding the Income Tax towards raffle prizes. In
contributions. Moreover, the employers can gain such regulation, the simplicity concept is defined as
the financial advantage such as interest provide “a convenience of individual or entity in fulfilling
from the total tax which is already withheld by its tax liability”. This matter can be explained from
themselves and it is obliged to be distributed after paragraph 2 of general elucidation:

8
Ibid.
9
Richard K. Gordon, “Law of Tax Administration and Procedure”, in Victor Thuronyi (Ed.), 1996. Tax Law Design and Drafting Volume 1,
IMF, Washington D.C., p. 116.
10
Barry Larking (Ed.), Op.cit., p. 373.
11
Koenraad van der Heeden, “The Pay-As-You-Earn Tax on Wages”, in Victor Thuronyi, Op.cit., p. 574.
12
Ibid., p. 574.
13
Ibid., p. 566.
14
Ibid., p. 565.
550 MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

For providing the convenience and legal of the feature that is found in Final
certainty as well as raising an obedience Income Tax regime is that the subject
of individual or entity in accomplishing of tax imposed by Final Income Tax
its tax liability, and in compliance with the can be an individual or a domestic
provision in article 4 (2) Act Number 7 of entity. This requirement can be found
1983 regarding Income Tax as amended with in all types of Final Income Tax. If
the Act number 17 of 2000, the imposing it is related to Potput Income Tax in
of Income tax on raffle prizes needs to be which the deduction is final which is
governed separately with a Government only imposed to Article 26 Income Tax
Regulation. that governs the Income Tax deduction
on Income Paid by taxpayers in
The same elucidation can be found on domestic level, including Permanent
Government Regulation Number 51 of 2008 Establishment (Bentuk Usaha Tetap) in
regarding Income Tax towards Income of Indonesia, to the taxpayers in foreign
Construction Service Business as amended with country, so that Final Income Taxation
can be said inconsistent with Potput
the Government Regulation Number 40 of 2009; Income Tax regime. The main reason
Government Regulation Number 15 of 2009 is the nature of final from the deduction
regarding the Income Tax on Saving Interest Paid of Income Tax article 26 is due to
by the Cooperation to Individual Cooperation taxpayers in foreign country does not
have any obligation to report in the
Members; Government Regulation Number 16 of
form of Annual Notification Letter, as
2009 regarding Income Tax on Obligation Interest laid down in Article 2(2) of Income
Income; and Government Regulation Number Tax Act. Moreover, Burns15 makes this
46 of 2013 regarding Income Tax on Income of character as a main character in the
definition of Final Income Tax, by way
the Accepted or Acquired by Taxpayer who Has
of declaring that: “Final withholding
Particular Gross Turnover. taxes on gross income are the usual
The interpretation of simplicity concept in method for assessing nonresidents
Final Income Taxation can be conducted by way of on income from capital. A final
comparing among the regulation of Final Income withholding tax means the recipient
is not required to file a return or face
types. Based on the research conducted by the additional assessment in the source
author, up until 2013, there are 12 types of Final jurisdiction with respect to income
Income Tax governed by Article 4(2) Income Tax subject to the tax”. With regards to this
Act. The criteria used by the Act is the types of tax matter, the domestic taxpayers have an
obligation of such reporting, so that the
subject set forth as taxpayers; income as object of
application of final nature in Income
Income Tax; when the tax debt; the amount of the Tax deduction in domestic transaction
tariff that is used; taxation system that is used for is inappropriate. In addition, Indonesia
tax debt payment; tax report mechanism; and the recognizes the calculation system of
global income, in which a taxpayer
availability of an option for taxpayers. Some of
adds all of the income which is the
Final Income Tax features that can be concluded the object of Income Tax as stipulated in
comparative legal research provide the explanation Article 4 (1) Income Tax Act, either
with regards to the interpretation of simplicity coming from Indonesia or outside
concept in Final Income Taxation in Indonesia as Indonesia, and it deducts the expenses
as set forth in Article 6 (1) and (2),
follows: Article 7 (1) regarding Non Taxable
a) Subject of Income Tax can be an Income, and Article 9 (1) points c,
individual or a domestic entity; one d, e, and g of Income Tax Act. Such

15
Lee Burns and Richard Krever, “Taxation of Income from Business and Investment”, in Victor Thuronyi (Ed.), Op.cit.,p. 671.
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 551

calculation is set forth in Article 16 cover many elements of expenses,

(1) of Income Tax. Therefore, the yet, it is not limited to expense for
author thinks that the Final Income purchasing materials, the expenses
Taxation does not need to be applied related to occupation or service,
in transaction in which the income trip expenses, waste management
recipient is domestic taxpayers. expenses, and administrative cost,
b) An Income imposed by Final Income as stipulated in Article 6 (1) Income
Tax can be an active income, such as Tax Act. Therefore, the regulation of
business profits or income related to gross income calculation as set forth
delivery service; and passive income, in Government Regulation Number 51
such as interest, dividend, and loan; of 2008 regarding the Income Tax on
as well as income from capital gain; Construction Service Business Income
based on the comparative legal as amended with the Government
research, it can be concluded that from Regulation number 40 of 2009 and
12 Final Income Tax Regime, there are Government Regulation Number 46
2 types of Final Income Tax in which of 2013 regarding the Income Tax on
can be imposed by business income of Income of the Accepted or Acquired
other active income, 6 types of Final by Taxpayer who Has Particular Gross
Income Tax imposed by the passive Turnover is inappropriate. This would
income, and 4 types of Final Income be the same with the income that is
Tax imposed by capital gain income. due to capital gain. Article 4 (1) point
The problem raised in this character is d Income Tax Act regulates that can
that the Income Tax regime which uses be an object of Income Tax Act is a
gross income as the basis of taxable profit obtained from subject of tax
income calculation is proper in case due to the purchase of wealth with
it is applied to passive income, such the higher price from the left value
as interest, dividend, and loan. This or higher than the price or acquisition
concept is stated by Burns16 saying value. Meanwhile, Article 4 (2)
that: “Withholding on income derived Government Regulation Number 48
by self-employed persons who are of 1994 regarding the Income Tax on
resident taxpayers will generally not be Income of the Transfer of Land Rights
a final tax. A taxpayer will be required and/or Building as amended with the
to file a return showing taxable income Government Regulation Number
for the tax year tax payable thereof, 71 of 2008 which governs that the
and a tax offset will be given for the basis of taxation that is applicable in
withholding tax”. One of the reason calculating Income Tax that is payable
why Income Tax can only be properly on the transfer of land rights is a value
imposed to passive income is that the of transfer of right as implied in section
amount of expense can be assumed to (1) is the highest value between the
the passive income which is relatively value based on Transfer of Right Deed
low or even there is no expense, thus, with the sale value of the object of land
the exemption of expenses deduction tax and or its building as lied down in
can be justified. For instance, the regulations which governs regarding
expenses that can be allocated to the the Land and Building Tax on Rural
income could be the lowest saving and Urban Areas. Thus, the concept
interest, thus, the Final Income Tax of simplicity in Final Income Taxation
that imposed to this type of income has deviated from the definition of
still reflects the ability to pay from Income based on Income Tax Act.
the taxpayer. In the other way around, The Final Income Tax governed in
the expenses that can be allocated such Act is not more that tax on land
to income such as business profits rights transfer and/or building, which

16
Ibid.
552 MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

resemble Custom Revenue of Land further, the concept of simplicity

Rights and or Building. in taxation of Final Income tax is
c) The tax payers do not have any manifested by way of determining
option for calculating payable Income proportional tariff. The amount of tariff
Tax based on net income; based on may vary, starting from 0.1% until
comparative legal research can be 20%. Conceptually, the determination
known that most of the incomes which of proportional tariff can simplify
has been imposed by Final Income Tax the calculation of payable Income
subjected by gross income, without Tax, only if the taxpayers are able to
any option for the taxpayers for identify the amount of tariff imposed
calculating the net income. There is by the received income. According
only type of income subjected to Final to the Author, this matter can only be
Income Tax that is possible for the manifested if the proportional tariff
taxpayers to calculate the net income, has a nature of single. For instance,
namely the additional income from towards the taxpayers, the amount of
transaction stock sale as stipulated tariff that is imposed by the received
in Government Regulation Number income is single, it is 25% as stipulated
41 of 1994 regarding the Income Tax in Article 17(1) point b juncto point
in Income from the Sale of Stock (2a) of Income Tax. However, based
Transaction in a Stock Exchange on the table above, there are only
as amended with the Government four incomes which are subjected
Regulation Number 14 of 1997. As it to Final Income Tax that has single
was discussed from the point before, tariff. Another eight types of income
such concept is reasonable for being only have a structure of different
imposed to passive income, however, proportional tariff for every subject
it would not be reasonable for being of tax and/or object of the tax. As a
imposed to active income and profits consequence, the taxpayers has to pass
due to capital gain. Such requirements through process of understanding the
are indeed simple, since making he requirements of regulations in detail
taxpayers easier for calculating the in order to get to know the applicable
taxable income. However, if there is tariff in transaction that is conducted
a Norm of Net Income Calculation by them. This matter it is of course
as regulated in Article 14 of Income in accordance with the word ‘simple’
Tax Act, so this concept will motivate as what has already been discussed in
the taxpayers for not having any the beginning of this chapter, that is
bookkeeping or record as set forth in “not so many detail (difficulties and so
Article 28 of UUKP. This matter can be on); not so many accessories”. Hence,
clearly seen on the General Elucidation it can be concluded that some Final
of Government Regulation Number 46 Income Tax can be paid by way of the
of 2013 regarding the Income Tax on taxpayers calculating and paying the
Income from the Accepted or Acquired payable tax.
by Taxpayer who Has Particular Gross e) The Final Income Tax can be deducted
Turnover, which stated the way of by the party who pays the income, or
payable Income Tax Calculation found paid by the taxpayers who received
in such regulation based on the policy the income; based on the table, it
for simplifying the taxation, reducing can be concluded that some Income
the administrative burden of taxpayers Tax is paid by way of the taxpayers
and tax officials, and it aims to provide calculating and paying their own
the convenient for taxpayers in certain taxable income. Income Tax is paid
group, that is for those who do not have by the income received from the land
any bookkeeping and are only able to rights and/or building transfer, the
identify the gross income. additional income from the transaction
d) The Calculation of Payable Final of founder transfer of share, the income
Income Tax using Proportional Tariff; from land or building leasing paid by
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 553

non-tax withholders, the income of his personal and financial interests

Construction Service Business paid are centered. In general, that is the
by non-tax withholders, and income of place where he has his usual abode.
the Accepted or Acquired by Taxpayer Moreover, that State generally has
who Has Particular Gross Turnover available all the information needed to
obliges the taxpayers to calculate, pay assess the taxpayer’s overall ability to
and report the taxable Final Income pay, taking account of his personal and
Tax to them. This is inconsistent with family circumstances”. Based on such
the concept of simplicity in taxation, precedent, it can be concluded that
as discussed before. the realization of the ability principle
2. The Interpretation of Simplicity Concept to pay becomes the obligation of
the domicile countries (resident
in Final Income Taxation Based on the
countries), and not the country of
Best Practice of Regulatory in Singapore origin. The allocation of rights of
The criteria that is used in analyzing the domicile country taxation towards
regulatory of Final Income Tax applicable in the subject of tax in their country is
Singapore is the same with the criteria that is used related to the jurisdiction in which the
subject of tax obtains from most of
in analyzing the Final Income Tax regulatory in the income. Besides, the information
Indonesia, that is the type of tax subject which is that can be obtained from the domicile
known as taxpayers; the use of the amount of tariff; countries towards the subject of tax is
the system of taxation that is used in the payment relatively limited. Those two reasons
is reasonable enough for prohibiting
of taxable tax; mechanism of tax report; and the
the domicile countries to simplify the
availability of options for taxpayers. Based on the calculation of taxable income for any
comparative legal studies, some of the features of reason. It is therefore, the domicile
Final Income Tax that can be concluded from the countries is prohibited for collecting
the Income Tax towards the subject of
table above and providing the explanation regarding
tax in their country against the income
the interpretation of simplicity concept in Final calculated by way of gross income and
Income Taxation in Singapore as follows: non-progressive tariff, whereas the
a) Subject of Final Income Tax is country of origin can do this for the
individual and foreign entity; from purpose of simplicity in taxation.
the regulation as set forth in the table b) The income subjected to Final
above, it can be said that Final Income Income Tax is active income from
Tax in Singapore can only be imposed profession, and passive income such
towards persons who are subject to as interest, dividend, and loan; based
foreign tax. This kind of requirement on the table above, it can be said the
is good, because the treatment towards income subjected to Final Income Tax
the subject of tax in domestic level in Singapore covered the active and
and international level is different passive income. The active income
in principal. In European Union, the subjected to Final Income Tax is the
judges of European Court of Justice income coming from the profession
examined Case Number 279/93 on 14 activity and vocational conducted
February 1995 between the Finanzamt by individual and entity which is not
Köln-Altstadt v. Roland Schumacker17 domiciled in Singapore, unless the
held that: “a non-resident’s personal income received from arbitrators
ability to pay tax, determined by ref­ and public entertainer. However, it
erence to his aggregate income and his is different from the Final Income
personal and family circumstances, is Tax subjected to active income in
more easy to assess at the place where Indonesia, individual or entity that is

17
Paragraph 32 – 33.
554 MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

imposed such Final Income Tax can the applicable single tariff. The single
choose for being calculated the net tariff is effectively still equal with the
income (chargeable income) with the applicable tariff if the recipients are the
deductions as regulated in Section 40 domestic taxpayers in Singapore, thus
SITA, that regulates Relief for non- it does not violate the principle of non-
resident citizens and certain other discrimination in International Tax
non-residents. It needs to be known Law. As a comparison, in European
that Chargeable Income in Singapore Union, European Court of Justice held
is “the remainder of his assessable precedent with regards to tariff which
income for that year after the reliefs is allowed for the country of origin in
and deductions allowed in this Part calculating the Income Tax to a foreign
have been made,” as stipulated in taxpayer and it is calculated from
Section 38 SITA. Hence, the simplicity gross income (without any expenses
is define as a policy that provides an deduction), that is:18 “[….] those
option for the foreign taxpayers for articles of the Treaty [EC Treaty – red.]
calculating its net income or gross do not preclude that same provision in
income, so that it remains focusing so far as, as a general rule, it subjects the
on the ability to pay from the income of non-residents to a definitive
taxpayers. However, the requirements tax at the uniform rate [….] deducted at
regarding the tax reporting become the source, whilst the income of residents
authorization of tax officials. It means is taxed according to a progressive
that tax officials are able to, by way of table including a tax-free allowance,
notification, determine for those who provided that the rate [….] is not
need to submit the letter of notification higher than that which would actually
(returns), and release certain persons be applied to the person concerned, in
from such obligations. Section 62 SITA accordance with the progressive table,
does not explain further concerning in respect of net income increased
the criteria used for determining or by an amount corresponding to the
releasing such obligations. Thus, tax-free allowance”. Based on such
the simplicity can be interpreted as a precedent, it can be concluded that
policy which provides a discretion for foreign tax payer can be subjected to
tax officials in determining persons, Income Tax of gross income, which
either in domestic or abroad, that needs its amount is more than Income Tax
to be assessed the obedience by way of of net income after being deducted
the obligation of reporting. by the non-taxable income from
c) The Calculation of Payable Final domestic taxpayer. As long as the
Income Tax using Proportional total of payable Income Tax of Gross
Tariff and in the Nature of Single; income is still under such limit, thus,
like the regime of Final Income Tax in principle, the country of origin has
in Indonesia, the Final Income Tax a freedom in determining the Final
in Singapore is also subjected with Income Tax tariff. From the simplicity
progressive tariff. The difference is the aspect in calculating the Income Tax,
structure of its tariff does not have any the author has declared before that the
complexity as it is found in some types single tariff supports the simplicity
of Final Income Tax in Indonesia. A for the taxpayers in calculating the
type of Income tax subjected to single payable Income Tax.
tariff, thus, the taxpayers only need d) Final Income Tax is deducted by the
to identify the type of its income and party who pays the income; the data
can directly calculate the payable in the table shows that the authority
Income Tax by way of multiplying for burdening the obligation of tax

18
European Court of Justice, Case C-234/01, 12 June 2003, Preliminary Ruling on case Arnoud Gerritse v. Finanzamt Neukölln-Nord, Paragraph
55.
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 555

reporting towards the taxpayers is simplicity in taxation of Income Tax.

considered as the full authorization Conversely, the system of taxation on
of tax officials. However, Section self-assessment does not support the
45 (1) SITA governs that: “Where simplicity in taxation of Income Tax,
a person is liable to pay to another because the income recipient remains
person not known to him to be resident bearing the economical burden and
in Singapore any interest which is administrative simultaneously.
chargeable to tax under this Act, the 3. Recommendation of Final Income Tax
person paying the interest shall – a.
Regulatory in Indonesia
deduct therefrom tax – […] (iii) where
Section 43(3) or (3A) is applicable Recommendation from the author aims to
to the person to be paid, at the rate restore the concept of the taxation of Income Tax,
specified in that provision, on every thus in accordance with the classic principles of
dollar of the interest; and immediately taxation. Before, the author would like to call
give notice of the deduction of tax in
writing and pay to the Comptroller back the definition of simplicity in taxation on
the amount so deducted, and every Final Income tax regime in Indonesia as analyzed
such amount deducted shall be a debt and discussed in the previous chapters. According
due from him to the Government and to the author, the regime of Final Income Tax is
shall be recoverable in the manner
inconsistent with the concept of simplicity that is
provided by Section 89”. Based on
such requirements can be concluded declared by the scholars, mainly because:
that the imposing of Final Income (1) all of the Final Income Tax is collected for
Tax in Singapore is only conducted domestic transaction, and (2) some types of Final
by way of withholding tax performed
Income Tax collected: (a) towards the active
by the parties who pay the income
that constitutes domestic Tax Payer in income; (b) calculated by using gross income
Singapore. The income recipient, that without any option for taxpayer in calculating with
is the foreign taxpayer, does not have net income; (c) with different proportional tariff
any obligation to pay tax directly to for a type of Final Income Tax; and (d) using the
Singapore authority tax. Moreover, the
payable Income Tax that occurs from system of self-assessment tax collection. Besides,
such transaction becomes the debt of the Final Income Tax regime which is applicable at
Income Tax that can be charged from moment has deviated from the concept of simplicity
depositor income, as governed in as postulated by Bawazier19 when the beginning of
Section 45(3) SITA, as follows: “Where
regime was introduced, as follows: “The increasing
a person fails to make a deduction of
tax which he is required to make under of efficiency in taxation can be achieved by way
subsection (1), any amount which he of spreading out the system of collecting and
fails to deduct shall be a debt due from withholding of tax[…], particularly towards the
him to the Government and shall be
economic activities that are relatively difficult
recoverable as such”. This requirement
shows that the position of a country in taxation, by holding the simplicity principle in
towards the domestic taxpayer who order to the taxation can be conducted fast, cheap,
is the depositor income and Income easy and practical, thus the expansion of such
Tax withholder. A state has an taxation and withholding system does not hamper
authority to determine the obligation
of withholding tax for taxpayers in the development of economic activity as such”.
their country. As explained before, the According to those reasons, it can be identified and
concept of tax withholding realizes the analyzed that some characters that should exist in

19
Fuad Bawazier and M. Ali Kadir, “Kebijakan dalam Tax Reform 1994 dan Tax Reform 1997”, in Anggito Abimanyu and Andie Megantara
(Eds.), 2009, Era Baru Kebijakan Fiskal: Pemikiran, Konsep dan Implementasi, Kompas Publisher, Jakarta, p. 155.
556 MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

interpreting the simplicity in collecting the Final Tax towards the domestic subject of tax cannot be
Income Tax, are: Firstly, Final Income Tax is only justified, because as discussed before, the domicile
subjected to income that is received by foreign tax country has the authority towards persons who
subject or that is relatively difficult of its taxation. domiciles in its region, including for burdening
As already discussed before, the taxation of Final the obligation to report and payment of tax with
Income Tax towards the foreign tax subject based the method of self-assessment. Excluding for this
on the difficulties for burdening the obligation matter can be given towards the economic activities
of reporting to such subject of tax, unless if the that is relatively difficult in its taxation, as cited
subject of tax has BUT in Indonesia, in which the from Bawazier before. However, there is a need of
obligation of its reporting, including the obligation clear definition and measured towards the economic
to conduct the bookkeeping that underlies the activity that is “difficult in its taxation”. One of the
making of Annual Notification Letter and/or ANL measurement that can be used is the amount of the
for a certain period, it is made the same with the paid income. For instance, the payment of interest
obligation to report for the other subject of domestic and deposit, as follows:20
entity tax. Conversely, the taxation of Final Income

Table 1. Burden of Saving Interest and General Deposit the Period of October 2013-
March 2014 (in billion Rupiah)
Period
Type of Bank
Products October November December January February March
2013 2013 2013 2014 2014 2014
Saving 15.829 17.457 19.231 1.730 3.326 5.042
Deposit 67.224 75.661 84.903 9.608 18.653 28.947
Source: Financial Service Authority of Republic of Indonesia, 2014.

Based on the table, it can be said that the Table 2. The Recapitulation of Volume and
payment of saving interest and deposit, that becomes Shares Transaction Frequency in Indonesia
Stock Exchange (Quarter IV of 2013 and
one of the income subjected to Final Income Tax, Quarter I of 2014)
has a huge transaction scale, particularly in the last Period
Shares
three months. It needs to be noted that such data Commercial Quarter III Quarter I of
does not cover the interest income for other types of Indicator of 2013 2014
bank, such as limited bank, credit bank and sharia Volume
(million sheets of 283.617 283.746
bank. Such data does not cover yet the total of shares)
customers of bank located in Indonesia. However, Frequency (times) 7.595.821 12.791.427
the amount of value that become the imposed tax Sources: IDX Statistics 1st Quarter 2014.
which is up to billions rupiah in a month, is enough
Based on the data and information showed in
to justify that the imposing Income Tax based on
the table, it can be drawn that shares commercial
the types of income of saving interest and deposit
transaction involved volume of trading and total
that is paid by bank including as the type of income
of huge frequency. Such data can be added more
coming from economic activity that is difficult in
with the average of daily transaction volume that is
its taxation. Another measure that can be used is
up to 4.727.000 sheets of shares and frequency as
volume and transaction frequency, such as volume
much as 126.597 times in quarter IV of 2013, and
and frequency of stokes sale, as follows:

20
Financial Service Authority of Republic of Indonesia, “Indonesian Banking Statistic”. Vol. 12, No. 4, March 2014, p. 11.
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 557

4.729.000 sheet of shares and frequency as much as has an authority to calculate back the taxable tax
213.190 times in quarter I of 2014. If it is added by on domestic taxpayers by way of tax examination,
a condition that both income are paid to the foreign so that the subjected Final Income Tax towards
and domestic subject of tax, thus, the importance the active income is not urgent. This option can be
of Final Income Taxation is enough strong. This regulated by way of the amendment of Government
is true that such number is relative, and there are Regulation which regulates regarding the taxation
more transactions in other economic activity has of Final Income Tax. The other option, that needs
the similar difficult level in its taxation. In this to change towards the Income Tax Act, is by way of
matter, the government needs to map the types of issuing the active income from the type of income
economic activities in which involved the volume that is subjected by the Final Income Tax, and
and frequency as well as the transaction in a period, move it in the withholding and taxation regime as
for later on to determine the minimum amount of regulated in the article 21,22 and 23 of Income Tax
such three aspects that has been fulfilled before Act. The last option is by way of determining the
determining certain income as the income subjected active income subjected to Final Income Tax as the
to Final Income Tax. income subjected to Income Tax article 25, that is
Secondly, Final Income Tax is better subjected Income tax that is paid gradually by taxpayers for
to passive income, or to active income and capital every tax period.
gain with an option of calculation on taxable net Thirdly, The Final Income Tax subjected
income. In the sub chapter IV.A is already discussed using the single tariff. as what has been discussed
regarding the reason of the necessity to limit the Final in the chapter IV.A, proportional tariff subjected to
Income Tax collection towards the income coming the regime of Final Income tax in Indonesia uses
from capital gain that is inappropriate with the many proportional tariff that is compound, so that
concept of capital gain as one of the type of taxable the taxpayers remains to read the Act carefully in
income. Sub chapter IV.B has already discussed order to understand how much tariff should be paid.
regarding the taxation on Final Income Tax towards In this context, the Final Income taxation in the near
the active income that remains giving the option future is better to use the single proportional tariff.
for the taxpayers for calculating the net income. the simplicity in calculating the Income Tax for the
According to the author, the first thing that needs taxpayers can only be realized if the taxpayers easily
to be done is revitalization of income interpretation notice how much tariff subjected to their income,
in Final Income Tax regime. An income must be without any complexity in identifying the tariff in
interpreted as an additional economic function, and accordance with its condition. In other words, there
not the whole gross income that is received by the is no “complex steps” that should be passed by the
taxpayers. In the context of passive income, this taxpayers in calculating the taxable income tax.
means that the taxable income must be calculated Fourthly, Final Income Taxation can only be
by way of deducting the deductible expenses form taxed by way of withholding or taxation. The taxation
the gross income. Meanwhile, in the context of an of Income Final Tax that is conducted without any
income from capital gain, this means the taxable withholding or taxation by third party in principle
income must be calculated from the difference can be realized the simplicity in such regime. By
between the market value and historical value. way of withholding and taxation, as what has been
Second, as long as the type of income constitutes as stipulated in the concept of PAYE, it occurs that the
an active income, thus the taxpayer has to be given obligation burden separation between the economic
an option for calculating its net income. This option and administrative obligation. The economic
has to be given for domestic taxpayer and can be burden remains on the hand of income recipient, as
given for foreign taxpayer. Tax general director the executor from the tax concept attached on the
558 MIMBAR HUKUM Volume 26, Nomor 3, Oktober 2014, Halaman 546-559

Income tax. Conversely, the administrative burden Secondly, the concept of the simplicity in
such as withholding, deposit, and reporting shifted Final Income Tax in Singapore interpreted as a Final
to tax withholders and tax collector. By way of this Income Tax regime which prioritize Pay As You
method can be realized in a simplicity in collecting Earn concept, by way of holding on to the principle
the Final Income Tax in Indonesia. Besides, this of the ability to pay from the taxpayer. The Final
method can make the supervision easier conducted Income Tax in Singapore can only be subjected
by the tax officials, because a withholder or tax towards the income recipient who are the foreign
collector in general deduct or collect the tax for the taxpayer, since Singapore as a country of origin, has
tax payers. Therefore, the Final Income tax in near a jurisdiction border towards such taxpayers, so that
future is better to use a single method of taxation, the simplicity is an option that has to be passed in
that is withholding and taxation by third party, and the achievement of the effectiveness and efficiency
not with the system of self-assessment. of Final Income Tax. However, in the process of
holding the principle of an ability to pay from the
C. Conclusion taxpayers, towards the foreign taxpayers subjected
Based in the aforementioned, and for to Final Income Tax on active income obtained
answering the legal issues in this research can be from the profession is given options, that cannot be
concluded that: Firstly, the concept of simplicity revoked, for calculating the taxable Income Tax is
in Final Income Tax in Indonesia interpreted the same with the applicable tax for the domestic
as a regime of the collection of Income Tax taxpayers in Singapore, that is based on net income
which provide the government for a flexibility in and with progressive tariff. As if such option has
determining the option of policy in executing the not been used, so the structure of Final Income Tax
budgeter function and governs from tax. In the tariff in Singapore is relatively easy to be applied,
beginning of 1983, the government distinguished due to its single nature without any complexity
the implementation of Income Tax in enhancing the based on its income subject of object. At last, the
development of certain type of saving, in the 2013, Final Income Tax in Singapore is applied with the
the government distinguishes the implementation concept of PAYE, so that the income recipient does
of Income Tax towards the taxpayers who have not need to calculate and pay the taxable Final
certain income in improving the tax obedience. The Income Tax in Singapore.
concept of simplicity in collecting tax is no longer Thirdly, the revolution of Final Income
based on the measures for providing justification Tax regime in Indonesia is urgent. This is because
on the violation of equality principle, so that there of the applicable Final Income tax regime is not
is shifting paradigm in interpreting the concept of in accordance with the concept the early regime.
simplicity in Final Income Tax in Indonesia. The The Final Income Tax subjected to the economic
Final Income Tax regime in Indonesia is inconsistent activity and the criteria as well as certain method,
with the concept of simplicity that is declared by now it is imposed to the domestic economic activity
the scholars, due to: (1) all of the Final Income in the purpose of tax intensification. The criteria and
Tax is collected for the domestic transaction, and method that are used in Final Income taxation may
(2) some of the type of collected Final Income Tax: vary, so that there is no consistency between the
(a) for the active income; (b) calculated using the types of Final Income tax. Furthermore, the Income
gross income without any option for the taxpayers Tax Act makes the government become possible to
in conducting the calculation by way of net income; determine the other type of income subjected to Final
(c) with the different proportional tariff for a type of Income Tax. This condition must be anticipated by
Final Income Tax; and d) using the system of self- the government in order to re-organize the Final
assessment tax. Income Tax in the future. Some recommendations
 Nugroho, The Application of Simplicity Concept of Taxation on Final Income Tax Regime in Indonesia 559

towards the regulatory of Final Income Tax in the however by way of giving an option for taxpayers
future is that the Final Income Tax shall be: (a) only in calculating the net income; (c) subjected to the
subjected to the foreign tax subject; it is difficult to single proportional tariff; and (d) collected by the
conduct the investigation and tax billing; (b) it is method of withholding or collecting by the third
only subjected towards the passive income or can party so there is no self-assessment.
be subjected to the active income and capital gain

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the Accepted or Acquired by Taxpayer who
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