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  • Maulana Ibrahim, Andre Wilson Siregar, Ellicia Emerliawati, Firyal Alvivah Safana, & Gabriel Muara Thobias

Article 4(2) Income Tax on Interest on Bond Received or Obtained by Domestic Taxpayers and Permanent Establishments



In order to harmonize the rate reduction policy, create equal income tax burdens between bond investors, and encourage the development of the bond market, the Government of the Republic of Indonesia imposes final Article 4(2) Income Tax on Interest on the bond received or obtained by domestic taxpayer and permanent establishment.


Tax Subject


Article 4(2) Income Tax is imposed on domestic taxpayers and permanent establishments that receive or obtain interest on bonds.


Domestic taxpayer consists of individuals, undistributed inheritance, and corporations, which is a tax resident based on Income Tax Law. Corporate taxpayer includes mutual funds and collective investment contracts.


The following are not the above Article 4(2) Income Tax subject:

  1. Pension funds whose establishment or incorporation has been authorized by the Minister of Finance and fulfill the requirements as regulated in Article 4(3) letter h of the Income Tax Law and its implementing regulations; and

  2. Banks incorporated in Indonesia or foreign bank branches in Indonesia.


 Tax Withholder


The tax withholders are the following:

  1. Bond issuer or custodian as the appointed payment agent, for interest and/or discounts received by bondholders with coupons at the bond interest maturity date and discounts received by bondholders without interest at the bond maturity date;

  2. Securities company, dealer, bank, pension fund, or mutual funds as intermediary trader and/or buyer, for the interest and discounts received by the bond seller at the time of the transaction; and/or

  3. The custodian or sub-registry as the party that records the transfer of ownership rights, for the interest and discounts received by the bond seller in the event that the sales transaction is carried out directly without an intermediary and the bond buyer is not the party appointed as the withholder as referred to in number 2 above.


In the event that bond interest issued by the Government is administered through the Bank Indonesia Scriptless Securities Settlement System, final Article 4(2) Income Tax which on bond interest is not withheld and paid by the interest on the bond recipient itself.


Tax Object


Article 4(2) Income Tax is imposed on income in the form of interest on bond. Interest on bond is compensation received or obtained by bondholders in the form of interest, ujrah/fee, profit sharing, margin, other similar income, and/or discount.


Bond is debt securities, government bond, and regional bond with a maturity of more than 12 (twelve) months issued by the government and non-government, including debt securities issued based on sharia principles (sukuk).


Tax Base


The basis for imposition of Article 4(2) Income Tax on interest on bond are the following

  1. Interest from the interest-bearing bond is the gross amount of interest according to the bond ownership period;

  2. The discount from the interest-bearing bond is the excess of the selling price or nominal value above the purchase price of the bond, excluding current interest; and

  3. The discount from a non-interest-bearing bond is the excess of the selling price or nominal value above the purchase price of the bond.


In the event that there is a negative discount or loss when selling an interest-bearing bond, the negative discount or loss can be calculated with the tax imposition base of Article 4(2) Income Tax on the current interest bond.


The bond seller is required to notify the purchase price and acquisition date of the bond and provide the Withholding Article 4(2) Income Tax Slip from the previous purchase of the bond to the tax withholder so that the tax withholder can calculate the interest and/or discount which are the basis for withholding Article 4(2) Income Tax.


In the event that the actual purchase price and date of the bond can not be determined, the purchase price and date are determined by prioritizing the earlier purchase price and date (First In First Out method).


In the event that the bond seller does not disclose the purchase price and acquisition date of the bond, interest and/or discount that are not disclosed are subject to income tax.


Tax Rate


Interest on bonds is subject to Article 4(2) Income Tax at a rate of 10% of the tax base.


Due Date


Article 4(2) Income Tax on interest on bond is due, when:

  1. Maturity date of interest on bond;

  2. Maturity date of the bond; and

  3. Transaction date of bond sale.


Withholding Tax Procedure


Article 4(2) Income Tax is withhold by tax withholder on income in the form of bond interest received or obtained by domestic taxpayer and permanent establishment.


Tax withholder is required to provide Withholding Article 4(2) Income Tax Slip to domestic taxpayer and permanent establishment who receive or earn bond interest.


Tax Payment Procedure


Tax Withholder of Article 4(2) Income Tax & taxpayer who is required to pay the tax by themselves is required to pay Article 4(2) Income Tax to the Post Office or a bank appointed by the Minister of Finance, no later than the 10th (tenth) of the following month after the month the tax is withheld.


If the tax payment due date coincides with a holiday, including Saturday, Sunday, national holiday, day off for holding the General Election, or national collective leave, the payment can be made on the next working day.


Income Tax payment is made using a Tax Payment Slip with the tax account code 411128 and the payment code 404.


Tax Filing Procedure


Tax Withholder of Article 4(2) Income Tax & taxpayer who is required to pay the tax by themselves must report the income tax withhold in the monthly Article 4(2) Final Income Tax return by no later than 20 (twenty) days after the tax period ends.


If the filing due date of the monthly Article 4(2) Final Income Tax return coincides with a holiday, including Saturday, Sunday, a national holiday, a day off for holding the General Election, or national collective leave, the filing can be made on the next working day.


Individuals who receive bond interest are required to report interest income and Article 4(2) Income Tax withheld and/or paid by themselves in the  Annual Individual Income Tax Return by no later than 3 months after the end of the tax year.


Meanwhile, entities that receive bond interest are required to report interest income and Article 4(2) Income Tax withhold and/or paid by themselves in Attachment IV of the Annual Corporate Income Tax Return by no later than four months after the end of the tax year.


Example of Article 4(2) Income Tax on Interest on bond received or obtained by domestic taxpayers and permanent establishments


Illustration 1


On 1 July 2022, PT AAA (issuer) issue interest bearing bond with the following information:

  • Nominal value of IDR12,000,000 per bond;

  • The bond term is 5 years (maturity date is 1 July 2027);

  • Fixed interest rate at 16% per year (interest due every 30 June and 31 December); and

  • The initial issuance is listed on the Indonesia Stock Exchange (BEI).


At the time of initial issuance, PT BBB (investor) purchased 10 bonds at a price below nominal value (at discount), amounting to IDR10,500,000 per bond. On 31 May 2023, PT BBB sell all the bonds to PT CCC at a selling price of IDR 10,666,667 per bond, including current interest, through an intermediary.


How is the calculation of current interest, discount, and Article 4(2) Income Tax payable by PT BBB at the time of the bond sale on 31 May 2023? Who withhold Article 4(2) Income Tax? How much will PT BBB receive when selling the bonds on 31 May 2023?


First, we calculate current interest amount, in the following way:

= (5/12 x 16% x IDR10.000.000) x 10 bond = IDR6,666,670


Then, we calculate the discount amount, as follows:

((IDR10.666.667 - IDR666.667) - IDR10.500.000,00) x 10 bond = IDR5.000.000,00


Then, we calculate Article 4(2) Income Tax on bond interest by multiplying the tax rate of 10% by the amount of current interest. However, because the calculation results show a negative discount/loss, the current interest amount needs to be deducted by the discount value as follows:

Article 4(2) Income Tax = 10% x (IDR6,666,670 - IDR5,000,000) = IDR166,667


Article 4(2) Income Tax is withheld by PT CCC. Therefore, PT BBB will receive IDR6,500,003 at maturity date.


Illustration 2


On 1 July 2019, PT ABC (issuer) issue interest bearing bond as follows:

  • Nominal value of IDR10,000,000.00 per bond.

  • The bond term is 5 years (matures on 1 July 2025).

  • Fixed interest rate of 16% per year, interest due every 30 June and 31 December.

  • The initial issuance is listed on the Indonesia Stock Exchange (BEI).


At the time of initial issuance, PT XYZ (investor) purchased 10 bonds at a price below the nominal value (at discount), amounting to IDR9,000,000,000 per bond.


How is the calculation of current interest and Article 4(2) Income Tax payable by PT XYZ at the maturity date on 31 December 2023? Who withhold Article 4(2) Income Tax? How much will PT XYZ receive when selling the bonds on 31 December 2023?


First, we calculate the amount of current interest in the following way:

= (6/12 x 16% x IDR10,000,000) x 10 bond = IDR8,000,000


Then, we calculate Article 4(2) Income Tax on bond interest by multiplying the tax rate of 10% by the amount of interest at maturity, as follows:

Article 4(2) Income Tax = 10% x IDR8,000,000 = IDR800,000


Article 4(2) Income Tax is withheld by the issuer or custodian appointed as payment agent (cash settlement). Therefore, PT XYZ will receive IDR7,200,000 at maturity date.


Illustration 3 

On 31 March 2023, PT XYZ sell all the bonds to PT PQR over the counter (OTC) through PT MNO Sekuritas, with a selling price of IDR10,400,000 per bond, including current interest. 


How is the calculation of current interest and Article 4(2) Income Tax payable by PT XYZ at the time of the bond sale on 31 March 2023? Who withhold Article 4(2) Income Tax? How much will PT XYZ receive when selling bonds on 31 March 2023?


First, we calculate the amount of current interest in the following way:

= (3/12 x 16% x IDR10,000,000) x 10 bonds = IDR4,000,000


After calculating current interest, the selling price excludes curent interest is IDR10,000,000 per bond.


Then, we calculate the discount amount, as follows:

((IDR10,400,000 - IDR400,000) - IDR9,000,000) x 10 bonds = IDR10,000,000


Next, we calculate Article 4(2) Income Tax on bond interest by multiplying the tax rate of 10% by the current interest amount. However, because Article 4(2) Income Tax on current interest and discounts has the same rate, therefore Article 4(2) Income Tax on current interest and discounts can be calculated together, as follows:


Article 4(2) Income Tax = 10% x (IDR4,000,000 + IDR10,000,000) = IDR1,400,000


Article 4(2) Income Tax is withheld by PT MNO Sekuritas as an intermediary. Therefore, PT XYZ will receive IDR 102,600,000 at maturity date.


Illustration 4


On 31 March 2023, PT PQR purchase 10 interest bearing bonds with the following information:

  • Nominal value of IDR10,000,000 per bond.

  • Purchase price of IDR10,400,000 per bond.

  • The bond term is 5 years (maturity date is 1 July 2025).

  • Fixed interest rate of 16% per year, interest due every 30 June and 31 December.


PT PQR owns the bonds purchased from PT XYZ until 31 December 2024. Therefore, on each interest maturity date, PT PQR is subject to Article 4(2) Income Tax amounting to 10% on the interest, withheld by the bond issuer or appointed custodian as the paying agent.


How is the calculation of current interest and Article 4(2) Income Tax payable by PT PQR at the maturity date of the bond interest on 30 June 2024? Who withhold Article 4(2) Income Tax? How much will PT PQR receive when the interest matures on 30 June 2024?


First, we calculate the amount of current interest in the following way:

= (6/12 x 16% x IDR10,000,000) x 10 bonds = IDR8,000,000


Then, we calculate Article 4(2) Income Tax on bond interest by multiplying the tax rate of 10% by the amount of interest at maturity, as follows:

Article 4(2) Income Tax = 10% x IDR8,000,000 = IDR800,000


Article 4(2) Income Tax is withheld by the issuer or appointed custodian as payment agent (cash settlement). Therefore, PT PQR will receive IDR7,200,000 at maturity date.


Illustration 5


On 31 December 2024, PT PQR sell all the bonds to PT CDE through Bank Pundi Nasional as an intermediary at a selling price of IDR10,500,000 per bond.


How is the calculation of interest at maturity date and Article 4(2) Income Tax payable by PT PQR at the time of the bond sale on 31 December 2024? Who withhold Article 4(2) Income Tax? How much will PT PQR receive when the interest matures and the bonds are sold on 31 December 2024?


First, we calculate the amount of interest in the following way:

= (6/12 x 16% x IDR10,000,000) x 10 bonds = IDR9,000,000


Then, we calculate Article 4(2) Income Tax on interest by multiplying the tax rate of 10% by the amount of interest at maturity:

Article 4(2) Income Tax = 10% x IDR9,000,000 = IDR900,000


Article 4(2) Income Tax on current interest is withheld by the issuer or appointed custodian as payment agent (cash settlement). Therefore, PT PQR will receive IDR8,100,000 when the interest is due.


Next, we calculate the discount amount, as follows:

(IDR10,500,000 - IDR10,000,000) x 10 bond = IDR5,000,000


Then, we calculate Article 4(2) Income Tax on discounts by multiplying the tax rate of 10% by the amount of the discount:

Article 4(2) Income Tax = 10% x IDR5,000,000 = IDR750,000


Article 4(2) Income Tax is withheld by Bank Pundi Nasional as an intermediary. Therefore, PT PQR will receive IDR104,250,000 when the bonds are sold.


Illustration 6


On 31 May 2025, PT CDE sell all the bonds to Sejahtera Mandiri Pension Fund (has been authorized by the Minister of Finance) directly without intermediary at a selling price of IDR10,666,667 per bond, including interest.


How is the calculation of current interest, discounts, and Article 4(2) Income Tax payable by PT CDE at the time of the bond sale on 31 May 2025? Who withhold Article 4(2) Income Tax? How much will PT CDE receive when selling bonds on May 31, 2025?


First, we calculate the amount of current interest, in the following way:

= (5/12 x 16% x IDR10,000,000) x 10 bonds = IDR6,666,670


Next, we calculate the discount amount as follows:

((IDR10,666,667 - IDR666,667) - IDR10,500,000) x 10 bonds = (IDR5,000,000)


Then, we calculate Article 4(2) Income Tax on bond interest by multiplying the tax rate of 10% by the current interest amount. However, because the calculation results show a negative discount/loss, the current interest amount needs to be deducted by the discount value as follows:

Article 4(2) Income Tax = 10% x IDR6,666,670 = IDR1,000,001


Article 4(2) Income Tax is withheld by Mandiri Sejahtera Pension Fund. Therefore, PT CDE will receive IDR105,666,669 when the bonds are sold.


Illustration 7


On 1 July 2025, when the bonds mature, Sejahtera Mandiri Pension Fund receives repayment of all the bonds and interest according to the ownership period (1 month) from PT ABC (the issuer).


How is the calculation of current interest, discounts, and Article 4(2) Income Tax payable by Sejahtera Mandiri Pension Fund at the maturity date of the bonds on 1 July 2025? Who withhold Article 4(2) Income Tax? How much will Sejahtera Mandiri Pension Fund receive when the bonds mature on 1 July 2025?


First, we calculate amount of current interest in the following way:

= (1/12 x 16% x IDR10,000,000) x 10 bonds = IDR1,333,330


Then, we calculate the discount amount, as follows:

(IDR10,000,000 - IDR10,000,000) x 10 bonds = nil


The bond interest received by the Pension Fund is not subject to Article 4(2) Income Tax because income received by the Pension Fund is exempted from income tax in accordance with Article 4(3)(h) of Income Tax Law and Article 2(2)(a) Minister of Finance Regulation Number 07/PMK.011/2012.


Illustration 8


On 1 January 2021, PT ABC issues non-interest bearing bond as follows:

  • The bond term is 10 years (matures on 1 January 2031).

  • Nominal value of IDR10,000,000.

  • The initial issuance of bonds was listed on the Indonesia Stock Exchange (BEI).


PT GHI purchases 100 non-interest bearing bonds at an initial price of IDR6,000,000 per bond.


On 31 August 2024, PT GHI sells 50 bonds on the Indonesia Stock Exchange through the securities company PT MNO Sekuritas to PT JKL for IDR7,000,000 per bond.


How is the calculation of discounts and Article 4(2) Income Tax payable by PT GHI at the time of the bond sale on 31 August 2024? Who withhold Article 4(2) Income Tax? How much will PT GHI receive when it sells the bonds on 31 August 2024?


First, we calculate the amount of the discount in the following way:

= (IDR7,000,000 - IDR6,000,000) x 50 bonds = IDR50,000,000


Then, we calculate Article 4(2) Income Tax on discounts by multiplying the tax rate of 10% by the discount amount at the time of bond sale, as follows:


Article 4(2) Income Tax = 10% x IDR50,000,000 = IDR5,000,000


Article 4(2) Income Tax is withheld by PT MNO Sekuritas as the intermediary. Therefore, PT GHI will receive IDR345,000,000 when the bonds are sold.


 

Legal Basis:

  1. Law Number 7 Year 1983 regarding Income Tax as lastly amended by Law Number 7 Year 2021 regarding Harmonization of Tax Regulations

  2. Government Regulation Number 91 Year 2021 regarding Income Tax on Interest from Bond Received or Obtained by Local Taxpayer and Permanent Establishment

  3. Minister of Finance Regulation Number 85/PMK.03/2011 regarding Procedures for Withholding, Payment and Reporting Income Tax on Bond Interest as amended by Minister of Finance Regulation Number 07/PMK.011/2012 regarding The Amendment of The Regulation of The Minister of Finance Regulation Number 85/PMK.03/2011 regarding Procedures for Withholding, Payment and Reporting Income Tax on Bond Interest


 
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