What Are Considerations in the Form of In-Kind and/or Fringe Benefits?

In general, a company provides remuneration in the form of salaries and benefits in the form of money paid directly by cheque or transfer. Remuneration in the form of cash is also known as benefit in cash.

In addition to monetary remuneration, companies frequently provide other forms of remuneration, such as goods and certain facilities. Consequently, there is also the term remuneration in-kind and/or fringe benefits.

As a form of remuneration, the granting of in-kind and/or fringe benefits is inseparable from tax provisions. The tax provisions for the granting of in-kind and/or fringe benefits are one of the main changes in the Income Tax Law under the Harmonisation of Tax Regulations (HPP) Law.

As such, what are in-kind and/or fringe benefits?

Definitions

Conceptually, in-kind or fringe benefits are benefits supplementing normal wages or salaries (OECD Glossary). Moreover, fringe benefits are defined as all forms of voluntary employer expenditures on noncash forms of compensation (Turner, 1999).

Fringe benefits may be given in various forms. For example, holiday bonus, travel allowance, free accommodation, free car, low-interest loans, etc (IBFD, 2015). Under domestic provisions, fringe benefits are known as in-kind and/or fringe benefits.

Referring to the elucidation of Article 4 paragraph (3) subparagraph d of Law No. 36 of 2008 (Income Tax Law), considerations or remunerations in the form of in-kind or fringe benefits in connection with work or services constitute an increase in economic capacity received not in the form of money.

Further, the elucidation of Article 4 paragraph (3) subparagraph d provides examples of remunerations in-kind, including rice, sugar and so forth. On the other hand, remunerations in the form of fringe benefits include the use of cars, houses and medical facilities.

However, the Harmonisation of Tax Regulations Law has amended Article 4 paragraph (3) of the Income Tax Law and the elucidation thereto. Article 4 paragraph (3) of the Income Tax Law as amended by the Harmonisation of Tax Regulations Law now no longer outlines the definition of in-kind and/or fringe benefits. This paragraph now stipulates the scope of in-kind and/or fringe benefits excluded from Income Tax objects.

The definition of in-kind and/or fringe benefits is now stipulated in the elucidation of Article 4 paragraph (1) subparagraph a of the Income Tax Law as amended by the Harmonisation of Tax Regulations Law. Based on the elucidation, remunerations in-kind refer to remunerations in the form of goods other than money. On the other hand, fringe benefits refer to remunerations in the form of rights to the utilisation of facilities and/or services.

Former Tax Provisions

Pursuant to Article 4 paragraph (3) subparagraph d of the Income Tax Law before the amendment by the Harmonisation of Tax Regulations Law, remunerations in connection with work or services received in the form of in-kind and/or fringe benefits from a taxpayer or the government is not an Income Tax object (non-taxable income).

However, if in-kind and/or fringe benefits are provided by a non-taxpayer, a taxpayer subject to final tax or a taxpayer that uses deemed profit, the in-kind and/or fringe benefits are subject to tax (taxable income).

A non-taxpayer includes the Asean Secretariat office in Indonesia and other parties regulated in Article 3 of the Income Tax Law. Further, taxpayers subject to final Income Tax are for example construction service business taxpayers. On the other hand, taxpayers subject to Income Tax based on deemed profit include taxpayers in overseas shipping service businesses.

For example, an employee of a diplomatic representative of a foreign country residing in Jakarta receives fringe benefits in the form of housing facilities and fringe benefits in other forms. These fringe benefits are income for the employee because the diplomatic representative official concerned fulfils the criteria as a non-taxpayer.

From the entrepreneur’s point of view, costs incurred in the form of in-kind and/or fringe benefits do not constitute deductible expenses stipulated under Article 9 paragraph (1) subparagraph e of the Income Tax Law.

Exclusions are only given for the costs of providing food and beverages for all employees, considerations or remunerations in the form of in-kind and fringe benefits in certain regions and those related to the implementation of work (MoF Reg. 167/2018). Please also check the following infographic.

Current Tax Provisions

Pursuant to Article 4 paragraph (1) subparagraph a of the Income Tax Law as amended by the Harmonisation of Tax Regulations Law, remunerations related to work or services provided in the form of in-kind and/or fringe benefits are included as Income Tax objects. However, not all in-kind and/or fringe benefits are taxable.

This is because pursuant to Article 4 paragraph (3) subparagraph d of the Income Tax Law as amended by the Harmonization of Tax Regulations Law, 5 forms of in-kind and/or fringe benefits are excluded from Income Tax objects. The forms of in-kind and/or fringe benefits excluded from Income Tax objects include:

1. foodstuff, ingredients for food, ingredients for beverages and/or beverages provided for all employees;

2. in-kind and/or fringe benefits provided in certain areas;

3. in-kind and/or fringe benefits to be provided by the employer in the implementation of work;

4. in-kind and/or fringe benefits sourced from or financed by the State Budget, the Local Government Budget and/or the Village Budget; or

5. in-kind and/or fringe benefits of certain types and/or thresholds;

Pursuant to Article 32C of the Income Tax Law as amended by the Harmonization of Tax Regulations Law, further provisions on remunerations in the form of in-kind and/or fringe benefits excluded from taxable objects will be regulated by or based on a government regulation (Gov. Reg.).

Conclusion

In essence, remunerations in the form of in-kind and/or fringe benefits are remunerations not given in the form of money. Although both are remunerations that are not in the form of money, the two have slight differences.

The difference between the two is that in-kind is a remuneration in-kind other than money. On the other hand, fringe benefits are remunerations in the form of the right to use facilities and/or services. (kaw)