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Income Tax (PPh) Article 4 Paragraph 2 is a type of final tax imposed on certain types of income, including income derived from land and/or building rental (lease) transactions. In this context, PPh Article 4 Paragraph 2 serves as a final tax directly deducted from the nominal rental (lease) amount received by the land or building owner.
Legal Basis
The legal basis for withholding Income Tax (PPh) Article 4 Paragraph 2 on land and/or building rental transactions is regulated under Undang-Undang No. 36 Year 2008 on Income Tax, which is the fourth amendment to Undang-Undang No. 7 Year 1983. Additionally, further provisions are stipulated in Peraturan Pemerintah (PP) No. 34 Year 2017, which governs the rates and mechanisms for tax withholding on land and/or building rentals.
When is Income Tax (PPh) Article 4 Paragraph 2 Withheld?
Income Tax (PPh) Article 4 Paragraph 2 must be withheld each time a payment is made for land and/or building rentals, using a tax rate of 10% on the nominal rental amount paid.
Who is Obligated to Withhold Income Tax (PPh) Article 4 Paragraph 2?
Why Tenants Must Withhold Income Tax (PPh) Article 4 Paragraph 2?
To Avoid Administrative Sanctions
a. Late Payment Fines
If the tenant fails to withhold and deposit the Income Tax (PPh) Article 4 Paragraph 2 on time, the tenant may be subjected to an administrative penalty in the form of interest at a rate of 2% per month on the amount of tax that should have been deposited, calculated from the due date until the payment date.
b. Late Filing Fines
In addition to the late payment penalty, the tenant may also be subject to a fine of Rp100,000 should they are late in filing the tax withholding through the monthly SPT Masa.
To Avoid Criminal Sanctions
In certain cases, if the negligence is deemed as intentional tax evasion act, the tenant, as the party responsible by law to withholding the tax, may also be subject to criminal sanctions.
To Avoid the Risk of Bearing the Land/Building Owner's Tax
If the tenant fails to withhold the tax, they are likely to be required to bear the tax burden that should have been withheld from the income recipient (in this case, the land and/or building owner). This means that, on top of paying the rent, the tenant must also bear the Income Tax (PPh) Article 4 Paragraph 2 that should have been borne by the land/building owner.
Illustration
PT ABC rents an office building owned by Mr. Adi in Denpasar to be used as a branch office. The agreed rental amount for the building is Rp200,000,000 per year, which will be paid annually.
The calculation of Income Tax (PPh) Article 4 Paragraph 2 for above rental transaction is as follow:
(10% Tax Rate) x (Rp200,000,000) = Rp20,000,000
PT ABC, as the tenant, is obligated to withhold Income Tax (PPh) Article 4 Paragraph 2 amounting to Rp20,000,000 before making the payment to Mr. Adi. Therefore, the total amount paid by PT ABC to Mr. Adi should be Rp180,000,000 (after the Rp20,000,000 deduction). PT ABC must then deposit the Rp20,000,000 to the state no later than the 10th of the following month.
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