Petitioners attending the Decision Pronouncement Hearing of the judicial review of Law No. 7 of 2021 on Harmonization of Tax Regulations, Thursday (13/11). Photo by MKRI/Ifa.

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Jakarta (MKRI) – The Constitutional Court (MK) ruled that the material judicial review of Article 4 paragraph (1) letter a and Article 17 of Law No. 7 of 1983 on Income Tax (PPh Law), as last amended by Law No. 7 of 2021 on Harmonization of Tax Regulations (HPP Law), on Case No. 186/PUU-XXIII/2025 inadmissible. The Court found the Petitioners’ arguments to be unclear and obscure.

“Since the petition is unclear or obscure, the Court will not further consider the issue of legal standing or the substance of the petition,” stated Chief Justice Suhartoyo as he delivered Decision No. 186/PUU-XXIII/2025 on Thursday, November 13, 2025, at the Plenary Courtroom.

Chief Justice Suhartoyo explained that after examining the wording of Article 4 paragraph (1) letter a as set out in Article 3 point 1 of Law No. 7 of 2021, he found that the phrase “allowances and pension payments” as cited by the petitioners does not actually appear in a single phrase; rather, the words “allowances” and “pension payments” are separate and not combined. Furthermore, in the petitum’s first point, the petitioners included argumentation that should rightly have appeared in the factual grounds section, making the petitum itself unclear.

In the second point of their petitum, the petitioners sought to have Article 17 paragraph (1) letter a declared conditionally constitutional according to their own interpretation. However, in their argumentation, they cited Article 17 as a whole, resulting in an inconsistency noted by the Court.

“Verdict, the Court adjudicates that the petition in Case No. 186/PUU-XXIII/2025 is inadmissible,” Chief Justice Suhartoyo stated.

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For reference, Article 4 paragraph (1) of the Income Tax Law provides: “Taxable income is income, namely any additional economic capacity received or accrued by a taxpayer, whether from Indonesia or outside Indonesia, which can be used for consumption or to increase the taxpayer’s wealth by name and in any form, including: a. salaries, wages, commissions, bonuses or gratuities, pensions or other remuneration for work performed.” Meanwhile, Article 17 of the same law sets progressive tax rates based on income brackets, applied to the final pay period for permanent employees, non-permanent employees earning more than IDR 2.5 million per day, non-employee income earners, activity participants, pension fund withdrawals, and former employees.

The petitioners in this case, who started as nine and later increased to twelve, comprise private bank employees from various banks, as well as the head of a bank employee union. They argue that the challenged provisions effectively treat severance and pension benefits, which are inherently long-earned normative rights of workers, the same as new, active income resulting from economic activity.

The petitioners argued that, philosophically and sociologically, severance pay and pensions cannot be equated with business profits or capital gains. They represent a worker’s final savings—the result of lifelong effort. According to the petition, the government and House of Representatives (DPR) wrongly classify severance pay received in lump sums as an “additional economic capacity,” even though such payments are savings deducted monthly from salaries and serve as recognition of service to one’s employer.

From a constitutional perspective, the petitioners contended that this policy obscures the meaning of Article 27 paragraph (2) of the 1945 Constitution. Severance pay, pensions, Old-Age Insurance (JHT), and Provident Funds (THT) form essential components of a decent livelihood; taxing them undermines workers’ constitutional right to live adequately after retirement.

In their petitum, the Petitioners requested that the Court declare Article 4 paragraph (1) of the HPP Law, insofar as the phrase “allowances and pension” as included in taxable income and resulting in tax liability on pension funds, conditionally non-binding in law. They specified that this provision should not apply and cannot be enforced to include as taxable objects any social security savings funds such as pensions, Old Age Security (JHT), and Old Age Allowance (THT), as these are not additional economic capacity, but social entitlements of workers protected by the 1945 Constitution.

They further asked the Court to declare Article 17 of the PPh Law juncto the HPP Law contrary to the 1945 Constitution, and to interpret the provision as only conditionally constitutional if “taxable income” does not include post-employment compensation (severance, pensions, THT, and JHT) that is social, compensatory, and non-productive in nature. Accordingly, the exclusion of tax from such post-employment benefits should be recognized as a constitutional guarantee, not a fiscal policy subject to change at will.

Tracking: Case No. 186/PUU-XXIII/2025

Author: Mimi Kartika

Editor: N. Rosi.

PR: Andhini SF.

Translator: Rizky Kurnia Chaesario

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 prevails.

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