Govt: Health Facilities and Medicine Not Taxable
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Finance Ministry’s advisor for regulations and taxation law enforcement Iwan Djuniardi delivering the Government’s statement at a material judicial review hearing of the Law on the Harmonization of Taxation Regulations, Tuesday (9/19/2023). Photo by MKRI/Panji.


JAKARTA (MKRI) — In support of middle- to low-income employees, Law No. 7 of 2021 on the Harmonization of Taxation Regulations (HPP Law) regulates that benefit in kind and/or benefits are exempted from taxable income, the President/Government argued through Finance Ministry’s advisor for regulations and taxation law enforcement Iwan Djuniardi at another judicial review hearing of the HPP Law on Tuesday, September 19, 2023 in the plenary courtroom. The petition No. 67/PUU-XXI/2023 was filed by Leonardo Siahaan, a private employee, who challenges Article 4 paragraph (1) letter a of the HPP Law.

He further explained that the exception is detailed and regulated in the Government Regulation (PP) No. 55 of 2022 on the Adjustment of Regulations in Income Tax, which is further implemented in the Regulation of the Minister of Finance (PMK) No. 66 of 2023 on Income Tax Treatment of Reimbursement or Compensation in connection with Work or Services Received or Earned in the form of In-Kinds and/or Benefits. It stipulates that compensation in the form of in-kinds such as health facilities and medical treatment relating to work accidents, occupational diseases, emergencies, and further treatment without any limit are is excluded from objects of income tax or is not subject to income tax.

“As such, compensation in the form of enjoyment in the form of health facilities and medical treatment provided by the employer to employees is not a tax object as long as it meets the criteria regulated in PMK No. 66/2023. Thus, the Petitioner’s argument has been accommodated in the PMK. Therefore, the enactment of the HPP Law has fulfilled the guarantee and legal certainty for employers and employees. Reimbursement or compensation provided in the form of health facilities and medical treatment by the employer is excluded from income tax. This, in fact, provides justice for employees and employers,” Iwan explained at the plenary hearing presided over by Chief Justice Anwar Usman, Deputy Chief Justice Saldi Isra, and the other seven constitutional justices.

Improvement of Employees’ Welfare

In relation to the Petitioner’s arguments, the Government concluded several things. First, the HPP Law and its implementing regulations regulates that not all income in the form of in-kinds and/or benefits received by employees is not taxable. There are exceptions to the criteria of types and limits. Second, the HPP Law and its implementing regulations provides guarantee of legal certainty and justice for employers and employees that reimbursements provided in the form of health facilities and medical treatment from the employer are exempt from income tax. Third, the HPP Law and its implementing regulations are intended to encourage employers to improve employees’ welfare by providing health services as costs incurred for the provision of health services can be charged as a deduction from taxable income.

Meanwhile, in relation to the Petitioner’s request that compensation in the form of health facilities and medical treatment not be categorized as in-kinds, the Government believes it is not appropriate. “Because if the petition is granted, it will have a negative impact where compensation in the form of health services is income whose tax must be paid by the employee who receives it. It does not encourage employers to improve their employees’ welfare by providing adequate health facilities and medical treatment. Therefore, the provisions of the a quo article are not contrary to Article 28D of the 1945 Constitution, so the Petitioner’s arguments are unsubstantiated,” Iwan said.

Academic Studies

In response to the President/Government’s statement, Constitutional Justice Enny Nurbaningsih requested that the President/Government submit academic studies and minutes of the discussion of the HPP Law as well as PMKs and circular letters mentioned in their statement at today’s hearing.

“Please include everything in one docket so that we get a clear explanation of the argument on Article 4 paragraph (1) of the HPP Law, which the Government delivered,” she said.

In line with this, Constitutional Justice Daniel Yusmic P. Foekh requested that the President/Government include illustrations of the calculation of tax exemptions mentioned in their statement. “Upon observance, it is clear that this Law was enforced in 2021 when the 2022 State Budget related to taxation [was drafted]. What is the percentage of the 2022 State Budget in relation to the norm challenged by the Petitioner?” he asked.

Also read: 

Private Employee Questions Taxable Health Facilities

Private Employee Revises Petition on Taxable Health Facilities  

Article 4 paragraph (1) letter a of the HPP Law reads, “The object of tax shall be income, which is any additional economic capacity received or obtained by the Taxpayer, whether originating from Indonesia or outside Indonesia, which can be used for consumption or to increase the wealth of the Taxpayer in question, in any name and form, including: a. reimbursement or compensation in connection with work or services received or obtained including salaries, wages, allowances, honoraria, commissions, bonuses, gratuities, pensions, or compensation in other forms including benefit in kind and/or benefit, unless otherwise specified in this Law.”

At the preliminary hearing on Monday, July 10, the Petitioner said health facilities and medical expenses have been insured by the company. Previously, they had been the responsibility of the company and employees did not pay any tax for it and had not been categorized as a taxable object.

He asserted that paying for such tax would put a burden on his finances. He also said that health facilities and medical expenses are an employee’s right, but now are taxable.

“The issue is that it was not a taxable object, but now is. Please imagine, Your Honors, for example my salary is two million, then it is cut for health facilities and medical expenses. This cut would harm me, as it might cut my salary from two million to just one million. It is ironic and takes away the rights of employees,” he explained.

The Petitioner questioned why health facilities and medical expenses are objects of income tax. “We know what the objects of income tax are. There is no connection to health facilities and medical expenses. I don’t understand why the Government made health facilities [and medical expenses] taxable,” he stressed.  

Author       : Utami Argawati
Editor        : Nur R.
PR            : Fitri Y.
Translator  : Tahlitha Laela/Yuniar Widiastuti (NL)

Disclaimer: The original version of the news is in Indonesian. In case of any differences between the English and the Indonesian versions, the Indonesian version will prevail.


Tuesday, September 19, 2023 | 14:43 WIB 191