List of Company and Employee Expenditure That are Subjected to Tax

Financial Planning and supervision in company spending efficiently and effectively is necessary in order to achieve a balance in the company's balance sheet.

Bambang Riyanto in his book ‘Fundamentals of Corporate Expenditures’ states that corporate expenditures are expenditures that include all activities related to efforts to obtain the funds needed by companies and efforts to use these funds as efficiently as possible (1981: 3).

Expenditures based on activities will be grouped into active and passive expenditures. Then, based on the source of funds, they will be grouped into internal expenditures and external expenditures.

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Active Expenditures

Active expenditures are the company's activities that use up their funds, such as  purchase of buildings, machinery, inventory items, and so on.

Passive Expenditures

Passive spending is a company's attempt to obtain funds to finance its business. In other words, passive spending is the source of capital shown on the credit side of the balance sheet.

Internal Expenditures

Internal expenditures are expenditures whose source of funds is taken from the company's own funds, for example non-sharing profits or the use of fixed assets whose value is declining.

External Expenditures

External Expenditure can be described as an effort to meet the capital needs of a company obtained from sources of capital outside the company and is known as self-financing (equity financing).

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Corporate and Employee Expenditure Tax

Expenditures for both companies and employees can be categorized as active expenditures, this expenditure can be seen on the debit side of the balance sheet where there are entries with embedded funds in the form of cash, bank, accounts receivable, goods, machinery and inventory. For this group, the taxation follows the provisions of 11% Value Added Tax, or Income Tax Article 23 (a value of 15% or with a DPP of 2%).

1. Purchase Terms with 11% VAT

The change of VAT rate to 11% (previously 10%) has been implemented since April 1, 2022. The government will continue to increase the VAT rate to 12% before January 1, 2025 (UU No. 7 of 2021 Harmonization of Tax Regulations).

Goods that are subjected to 11% Value Added Tax includes:

1. Electronics (smartphones, televisions, laptops, computers etc);
2. Clothing apparels 
3. Personal hygiene products such as soaps, toothpaste, shampoo, etc;
4. Footwear such as shoes and sandals;
5. Telecommunications provider services such as phone credit and internet bills;
6. Middle to upper scale houses or place of residence;
7. Vehicles such as motorbikes and cars;
8. Household electricity with a power of more than 6600 VA.
9. digital advertising services; and
10. Items purchased on the marketplace.

In this case, almost all company spending and employee spending are subject to the 11% Value Added Tax as mentioned above.  Such as purchase of electronic goods to support work, company’s vehicles, as well as miscellaneous stuff purchased through the marketplace to support daily operations.

There are types of goods that are not subject to Value Added Tax according to the applicable law, such as food and drinks served in hotels, restaurants, restaurants, stalls, etc. This includes food and drinks, either consumed on site or takeaways, such as food and beverages delivered by catering or catering businesses, which are objects of regional taxes and regional levies in accordance with the provisions of laws and regulations in the field of regional taxes and regional levies.

2. Provisions for Spending according to PPh 23

PPh 23 is an income tax that is imposed on tax objects in the form of:

1. Dividend;
2. Interest;
3. Royalties;
4. Gifts, awards, bonuses, and the like other than to Individuals;
5. Rent and other income related to the use of assets, except for land and/or building rentals (such as vehicle or sound system rentals); and
6. Gratification or income paid to other parties or partners related to technical services, management services, construction services, consulting services, and services other than those that have been deducted by Article 21 Income Tax.

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The standard rate charged based on the applicable policy is 15% and 2% of the value of the Tax Imposition Basis (DPP) or 2% multiplied by the gross amount excluding VAT. The gross amount in these provisions does not include:

1. Payment of salaries, wages, honorarium, benefits and other compensation related to work paid by the taxpayer who provides labor to workers, based on contracts with service users;
2. Payments to service providers for the procurement/purchase of goods or materials related to the services provided;
3. Payments to third parties paid through service providers, related to services provided by service providers; and
4. Payments to service providers including reimbursement of fees paid by service providers to third parties providing the relevant services.

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The 15% rate is imposed on tax objects in the form of dividends, interest, royalties and gifts (awards, bonuses and the like other than to individuals). Meanwhile, the 2% DPP rate is charged for rent (and other income related to the use of assets, except for land and/or building rent) and fees for services listed previously.

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Tax Terms

In general, purchases made by employees or companies is subject to 11% VAT, it is different if the purchase involves a third party in the process, where PPh 23 will be imposed with a 2% DPP.

So, when you receive invoices from third parties related to purchases made either the company or their employees, you will have to first examine the category of the tax object.

For example, if your company uses consulting services from other companies in product development planning, you need to deduct the PPH 23 by 2% of the gross amount of the service value and make receipts of the withholding.

This regulation applies to companies with either PKP status (Taxable Entrepreneurs) or non-PKP since last October 2020. Where individual businesses and non-PKP business entities will be subject to twice the tax rates, which is 30% (for PPh 23 the normal rate is 15%) and 4% (for PPh 23 with a DPP of 2%).

So those are the provisions regarding corporate spending tax. Companies are entitled to recover taxes on some types of their purchases. This amount will usually be billed to their supplier or vendor or deducted from the payment amount. For the latter, the company must send proof of withholding to the supplier or vendor.

Indeed, tax calculations often complicate the company's accounting process. For this reason, Aspire has launched a new feature to help companies simplify tax deductions and collect taxes from related suppliers or vendors. This tax deduction feature is part of Aspire payables management. With the tax deduction feature, you can automate tax deductions up to the billing process and send proof of deductions directly to suppliers and vendors. save the precious work hours of the finance team!

To find out more about this feature, check on the Aspire payable management solutions page, or contact our team to schedule a demo and find out more about Aspire's features that will make your business finance operations easier.