With Job Creation Law, Cooperatives’ Distributed Net Income Tax Exempt

JAKARTA, DDTCNews – Since the enactment of the tax provisions under Law 11/2020 concerning Job Creation, the distribution of net income received by cooperative members is officially excluded from income tax (PPh) objects.

Director of Tax Regulations II of the Directorate General of Taxes (DGT) Estu Budiarto said the government provides equal tax treatment between the distribution of net income of cooperatives and dividends in line with the enactment of the Job Creation Law.

“Taxes have been imposed on cooperatives, thereby, when net income is distributed among members, it does not constitute an object but similar to dividends,” he said, quoted on Friday (26/8/2022).

Before the Job Creation Law came into force, the net income of cooperatives distributed among members constituted a taxable object pursuant to Article 4 paragraph (1) subparagraph g of the Income Tax Law.

As is known, the Job Creation Law adds to the types of income excluded from taxable objects outlined in Article 4 paragraph (3) of the Income Tax Law.

In addition to excluding the distribution of net income from tax objects, the Job Creation Law also excludes dividends received by individuals from taxable objects insofar as these dividends are invested domestically within a certain period.

Referring to the Minister of Finance Regulation (MoF Reg.) 18/2021, the certain period is 3 years. Prior to the Job Creation Law, dividends received by individual taxpayers were subject to a final income tax of 10%.

Moreover, dividends received by corporate taxpayers are also excluded from taxable objects. Prior to the Job Creation Law, dividends were excluded from taxable objects if share ownership in the entity paying the dividend amounted to 25%.

Next, deposit funds for hajj fees and income from the development of hajj finances by the Hajj Financial Management Agency are also excluded from taxable objects.

Finally, the surplus received by social or religious institutions is also excluded from taxable objects provided that the surplus is reinvested in the form of social and religious facilities and infrastructure within a maximum period of 4 years since the surplus is accrued. (rig)