Fairer Distribution: Government Eyes Domicile-Based Income Tax Article 21

JAKARTA. The government is preparing a major change in the distribution of revenue from Income Tax Article (ITA) 21. Previously, the revenue from employee income tax was distributed based on the location of the company that withheld the tax. Going forward, the mechanism may shift to follow the domicile of the employees.

Deputy Minister of Finance Anggito Abimanyu believes this measure will be fairer for regions. He pointed out that many regions with large numbers of workers have not benefited from tax revenues, as the withholding has been carried out at company headquarters located in other cities.

“For employee income tax or ITA 21 that is withheld and shared with regions, up to now, it has been based on the location of the withholder. Now we are currently conducting an exercise to apply revenue-sharing based on the domicile of the respective employees,” Anggito said in a virtual working meeting with the Regional Representative Council (DPD) on Wednesday (3/9), as quoted from bisnis.com.

According to Anggito, the domicile-based approach will address the aspirations of many regions demanding fairness in tax distribution. In this way, regions where employees live will receive greater benefits from the contributions of their residents.

However, he emphasized that this change will only apply to ITA 21. “For corporate income tax, there will be no revenue-sharing. So wherever the tax is collected, it does not affect the revenue-sharing aspect,” he explained.

Current Revenue-Sharing Scheme

Citing the official statement from the Directorate General of Treasury (DJPb), the distribution of revenue-sharing funds for Income Tax Article 21  is currently carried out quarterly based on projected tax revenue realization within the ongoing fiscal year.

In detail, in the first to third quarters, each is disbursed at 20% of the provisional allocation. Then, in the fourth quarter, the distribution is made based on the difference between the final allocation and the total funds already disbursed in the previous quarters.

As for the current distribution formula, 8% goes to provincial governments and 12% to regencies/municipalities within the province.

With the planned shift to an employee-domicile-based scheme, this mechanism may be revised in the hope of achieving a more equitable distribution of tax benefits across regions. (KEN)