Comparing Tax Rules: Singapore vs. Indonesia

Tax regulations vary significantly across countries based on their respective governmental rules. For instance, Singapore and Indonesia exhibit distinct differences in their tax systems.

Singapore imposes lower tax rates on personal and business income compared to Indonesia. These disparities extend to tax rates, dividend taxes, and the management of foreign income, influencing how individuals plan their finances in each country.

What are the differences in taxation between Singapore and Indonesia? Let's find out!

Singapore

Singapore implements a unique tax reporting system, partly due to the Island Revenue Authority (IRAS) operating independently from the Ministry of Finance. This independence allows IRAS greater flexibility in devising efficient tax regulations.

Indonesia

In Indonesia, tax authority rests with the Directorate General of Taxes (DJP) under the Ministry of Finance. Consequently, tax regulations in Indonesia are determined by the Ministry of Finance.

These differences contribute to varied tax reporting systems in both countries. Singapore employs a self-reporting system where taxpayers file Income Tax Returns (SPT) using forms. Additionally, IRAS offers a No-Filing Service (NFS) that simplifies tax reporting by automatically integrating income data, streamlining the process.

In contrast, Indonesian taxpayers must file annual SPT independently or through their employers for Personal Income Tax (PPh).

Although VAT and GST have similar meanings, their implementation in different countries results in variations in rates, objects, and reporting procedures. Let's take an example of the implementation of VAT in Indonesia compared to GST in Singapore.

Value Added Tax (VAT) in Indonesia

Value Added Tax is a levy imposed on transactions involving the sale of goods or services due to the added value. This tax is levied on Taxable Entrepreneurs (PKP). When someone engages in transactions of goods or services as a final consumer, they are subject to tax on those transactions.

Goods and Services Tax (GST) in Singapore

GST is a sales tax imposed in countries like India, Australia, New Zealand, Singapore, and Hong Kong. This tax is similar to Value Added Tax, levied on the consumption of goods and services. Generally, VAT and GST are conceptually similar types of taxes.

Both VAT and GST share two fundamental characteristics:

• They are imposed on goods and services, both referred to as objective taxes.

• VAT and GST are levied at each stage of the production and distribution chain by taxable entrepreneurs (PKP) through the mechanism of input tax credit against output tax. It can be said that VAT and GST are indirect taxes.

Indonesia's VAT

Starting from April 1, 2022, Indonesia's VAT rate is 11%, regulated by Article 7 of Law Number 7 Year 2021 on Harmonization of Tax Regulations. This rate applies to taxable transactions of goods and services conducted by taxable entrepreneurs (PKP) within the country.

There is also a special 0% rate for exports of Taxable Goods (BKP) in tangible and intangible forms, as well as Taxable Services (JKP), with possible adjustments ranging from 5% to 15% based on applicable regulations.

Singapore's GST

GST was introduced in Singapore on April 1, 1994, with an initial single rate of 3%. Since then, the GST rate has undergone several significant adjustments. In 2003, the rate increased to 4%, followed by another increase to 5% the following year. In 2007, the GST rate rose again to 7%, and as of 2018, the latest applicable GST rate is 9%.

In conclusion, variations in tax regulations between Singapore and Indonesia include differences in tax authority setups, reporting methods, and imposed rates, influencing unique approaches to financial planning in both nations.

Does Indonesia have a tax treaty with Singapore?

The Double Taxation Avoidance Agreement (DTAA) between Indonesia and Singapore has been in place for 31 years. The Indonesia-Singapore DTAA was signed on May 8, 1990, and came into effect in 1992.

Why is Singapore's tax low?

Singapore's scale is small compared to Malaysia, let alone Indonesia. Because it's small, the overhead costs of the country are also small. There aren't many residents who need social assistance, and the infrastructure is large, among other things. Therefore, they do not need high taxes.

Are taxes high in Indonesia?

Indonesia has relatively high tax rates, with 30% for companies and 20% for individuals. Meanwhile, neighboring countries like Malaysia and Singapore have lower tax rates, at 24% and 22%, respectively.

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