MOF Regulation 66/2023 is an implementing regulation of Government Regulation No. 55/2022. MOF Regulation 66/2023 elaborates on the definition, monetary limitation and treatment of BIKs that can be treated as deductible expenses in calculating taxable income, which are all generally regulated in Government Regulation No. 55/2022. Concurrently, MOF Regulation 66/2023 revokes MOF Regulation No. 167/PMK.03/2018 starting on its effective date.

MOF Regulation 66/2023 was issued to provide more legal certainty on the income tax treatment of reimbursement or compensation for work or services in the form of BIKs, as well as to avoid tax base erosion endeavors. This arrangement encourages employers to provide a variety of employee facilities that can be deducted from gross income. This arrangement also provides equality of treatment, so that the imposition of income tax on a type of income does not depend on the form of income, whether in the form of money or other forms. 

Overview of MOF Regulation 66/2023

• The cost of reimbursement or compensation in connection with the work is the cost of reimbursement or compensation related to the employment relationship between the employer and the employee; meanwhile, the cost of reimbursement or compensation in connection with services is the cost of reimbursement or compensation due to service transactions between taxpayers.
• The cost reimbursement or compensation in the form of BIKs in connection to work and/or services provided can be deducted from gross income to determine the taxable income of the employer or provider of BIKs to the extent that it is a cost of obtaining, collecting and maintaining income. On the other hand, for recipients, BIKs are object of income tax.
• Provisions regarding BIKs that are treated as deductible expenses came into effect on:
  • 1 January 2022, for employers or remuneration/compensation providers that started their FY2022 bookkeeping before 1 January 2022
  • When FY2022 begins, for employers or remuneration/compensation providers that started their FY2022 bookkeeping on 1 January 2022 or later
• Under MOF Regulation 66/2023, starting on 1 July 2023 employers are obliged to withhold income tax on BIKs that exceed the value limits. All BIKs received in 2022 by employees or service providers are treated as non-taxable objects. Tax of BIKs received from 1 January 2023 to 30 June 2023 that have not been withheld by the employers must be calculated, paid and reported by the recipient in their annual individual income tax return.

Details of MOF Regulation 66/2023

The application of income tax on BIKs is subject to the appropriate value received by employees. Therefore, BIKs of certain types and certain value limits are excluded from the income tax object.

MOF Regulation 66/2023 stipulates that the following types of BIKs are not tax objects:

1. Food, food ingredients, beverage ingredients and/or drinks for all employees

Food and/or beverages and their ingredients for all employees that are not a tax object include the following:

1. Food and/or drinks provided to the employees at the workplace
2. Food and/or drink coupons (including non-monetary transaction tools to be exchanged for food and/or drinks or its reimbursement from employers) for employees who cannot enjoy the foods and/or drinks provided by the employer at the workplace due to their nature of work (i.e., marketing employees). The foods and/or drink exempted with the maximum amount being:
   1. IDR 2 million monthly for each employee
   2. The monthly cost of food and/or drinks for each employee provided at the workplace, if the value is more than IDR 2 million monthly for each employee
3. Food and/or drink ingredients for all employees with a certain value limit

2. BIKs provided in certain areas

BIKs provided in certain areas are exempted from tax objects as long as the location of the employer's business is stipulated as a certain area by the Director General of Tax. The relevant BIKs are in the following forms:

1. Residence, including housing
2. Health services
3. Education
4. Worship
5. Transportation
6. Sports not including golf, boat racing, horse racing, gliding or automotive sports

Certain areas generally refer to remote areas with limited economic and transportation infrastructure.

The requirements for the employer's business location to be appointed as a certain area are further listed in MOF Regulation 66/2023.

3. BIKs that must be provided by employers for carrying out work

BIKs provided by the employer in relation to safety, health and/or security of employees at work as required by ministries or institutions are not tax objects. These include the following:

1. Uniforms
2. Equipment for work safety
3. Employee shuttle service
4. Lodging for crew members and similar things
5. BIKs received in endemic, pandemic or national disaster management

4. BIKs that originate or are financed by state revenue and spending budgets, regional income and expenditure budgets and/or village income and expenditure budgets

5. BIKs by type and/or certain limitations

Determination of BIKs by type and/or certain limitations is based on the following:

1. Recipient criteria and/or value of the in-kind received
2. Recipient criteria, value, and/or function of the benefits received

The excess of the value of BIKs received or obtained by the recipient after deducting certain limits in the form of the values mentioned above is the object of income tax.

MoF Regulation 66/2023 provides an extensive list of the BIKs types and certain limitations, as well as examples of calculating the excess value of the BIKs over the limitations. For example, in-kinds that are exempted from income tax are parcels provided to all employees for religious holiday celebrations; work facilities, which includes laptops, cellular phones, phone credit, and internet connection; and medical facilities with certain limitations and others.

The withholding tax obligation

The employer should withhold income tax on the BIKs at the end of each month in which the employee wholly or partially receives BIKs.

For BIKs received prior to the effective date of MOF Regulation 66/2023, the income tax treatment is as follows:

1. BIKs received in fiscal year 2022 are exempted.
2. Tax on BIKs received from January 2023 to June 2023 for which the employer or remuneration/compensation provider has not deducted withholding tax must be calculated, paid and reported by the employee or recipient in their annual individual income tax return.

Actions to consider

Employers are advised to identify the BIKs provided to their employees, as starting on 1 July 2023 employers are obliged to deduct and withhold the income tax on the BIKs that exceed the value limits.

Employees are advised to calculate, pay and report the tax on BIKs received from January 2023 to June 2023 in their annual individual income tax return.

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