OECD Suggests Lowering Non-Taxable Income Threshold to Broaden Indonesia's Tax Base

JAKARTA. The OECD has recommended that the Indonesian government lower the non-taxable income threshold (PTKP) to boost its tax revenue.

In addition to increasing tax revenue, this policy is projected to boost Indonesia's economic growth by 0.7% in the medium term.

The recommendation was presented in the report OECD Economic Surveys: Indonesia November 2024, which was released on Tuesday (November 26).

The OECD Economic Survey is a regular publication issued by the OECD, providing in-depth analysis. The report is prepared through policy dialogues between the OECD and senior policymakers from developed and developing countries, including Indonesia.

Impact on Middle-Class Income Tax

Currently, Indonesia's non-taxable income threshold (PTKP) is set at IDR 54 million per year or IDR 4.5 million per month. This means Indonesians earning up to IDR 54 million annually are exempt from paying taxes.

According to the OECD, this income level equals 65% of Indonesia’s per capita gross domestic product (GDP). As a result, a significant portion of Indonesia’s middle class is not subject to income tax. 

The outcome is that only 10% of Indonesians pay income tax, which is lower than the ASEAN average, where 15% of the population typically pays taxes.

Taxable Income Brackets

Reducing the non-taxable income threshold (PTKP) will also lower the taxable income brackets. In its report, the OECD projects Indonesia's economic growth 2025 to reach 5.2% year-on-year (YoY).

In response, Minister of Finance Sri Mulyani stressed Indonesia's strong ambition to achieve high-income country status with greater inclusivity.

To support this goal, various policies will be implemented to strengthen the economic structure, such as advancing industrial downstream. (ASP/KEN)