PMK 105 of 2025 Indonesia: A Strategic Guide to the 2026 Government-Borne PPh 21 Incentive

The Indonesian government has officially released PMK 105 of 2025 Indonesia, a pivotal regulation designed to strengthen the national economy throughout the 2026 fiscal year. This policy introduces the Government-Borne PPh 21 Incentive 2026 (locally known as PPh 21 DTP), acting as a significant financial stimulus for both employers and employees. By essentially paying the income tax on behalf of eligible workers, the government aims to maintain public purchasing power while providing much needed relief to labor-intensive industries.

What is the PMK 105 of 2025 Indonesia Regulation?

At its core, PMK 105 of 2025 Indonesia is a subsidy program where the state bears the burden of Income Tax Article 21 for specific sectors. Effective from January to December 2026, this regulation ensures that employees receive their full salary without the usual tax deductions, effectively increasing their take-home pay. For companies, this means an opportunity to improve employee welfare without increasing direct payroll costs or opting for complex “gross-up” salary schemes.

Eligibility Criteria: Who Qualifies for the 2026 Incentive?

The Indonesia tax incentives 2026 are not universal. They are strategically targeted toward sectors that are vital for employment stability.

A. Eligible Employers (The Company)

To qualify under PMK 105 of 2025 Indonesia, a business must operate in specific labor-intensive or tourism-related sectors, including:

• Footwear and Textile manufacturing
• Garment and Leather goods industries
• Furniture manufacturing
• Tourism, hospitality, and related services

A critical administrative requirement is the Business Classification Code (KLU). Your company must have the correct KLU registered in the tax authority’s database as of January 1, 2026. If your data is outdated, you risk being excluded from the program regardless of your actual operations.

B. Eligible Employees (The Staff)

The incentive applies to two categories of workers who meet the following salary caps:

• Permanent Employees: Those with a monthly fixed gross income of IDR 10,000,000 or less. They must possess a valid NPWP or a NIK that is fully integrated with the tax system.
• Non-Permanent/Daily Workers: Those earning a daily wage of IDR 500,000 or less, or a total monthly income not exceeding IDR 10,000,000.

How the Government-Borne PPh 21 Incentive 2026 Works Operationally

Implementing this incentive requires more than just stopping tax deductions. It involves a specific cash-flow and reporting cycle:

1. Calculation: The employer calculates the PPh 21 as they normally would.
2. Disbursement: Instead of sending that tax to the state, the employer pays it directly in cash to the employee during the payday.
3. Documentation: The employer must still issue a formal tax withholding slip to the employee.
4. Reporting: The company must report the usage of the incentive in their monthly PPh 21 tax returns.

It is important to note that this incentive is not considered taxable income for the employee. However, it is a “use it or lose it” benefit; it cannot be refunded or carried forward if there is an overpayment.

Understanding the Business Impact and Risks

While PMK 105 of 2025 Indonesia offers clear financial advantages, it transforms payroll into a high-stakes compliance task.

The biggest danger for businesses is the administrative trap. If a report is submitted late or contains incorrect KLU data, the government may void the incentive, forcing the employer to pay the taxes out of pocket, often with added penalties.

Why Professional Tax Support is Vital in 2026

The Indonesia tax incentives 2026 are a double-edged sword. On one hand, they offer a rare chance to optimize tax burdens. On the other, they require absolute precision in regulatory eligibility, payroll calculations, and documentation discipline. Mistakes do not just result in small fines, they can eliminate the entire incentive for your workforce.

To stay compliant, companies should consider an external audit of their KLU status and a thorough mapping of employee eligibility before the 2026 cycle begins.

Secure Your 2026 Tax Benefits Today

Don’t let administrative errors stand between your company and significant tax savings. At Business Hub Asia, we specialize in helping multinational and local firms navigate the complexities of Indonesian tax law.

Are you ready to audit your KLU and secure your payroll for 2026? Contact Our Tax Experts Now to ensure your business is fully compliant with PMK 105 of 2025 Indonesia.