The tax system is a fundamental pillar supporting a country’s economic stability and infrastructure financing. Taxes serve as a primary source of funding for various government projects and programs aimed at enhancing public welfare.
This comparative analysis examines the tax systems of Indonesia and Malaysia—two neighboring countries with closely linked economic histories. While their tax systems differ, both are designed to meet their respective fiscal and economic needs.
Tax Systems in Indonesia and Malaysia
Indonesia’s tax system follows the self-assessment principle, where taxpayers are responsible for calculating, reporting, and paying their taxes. This is governed by Law Number 7 of 2021 on the Harmonization of Tax Regulations (“UU HPP”). Article 1, paragraph (2) of the UU HPP outlines the objectives of this law:
- Promoting sustainable economic growth and accelerating economic recovery;
- Optimizing state revenue to finance national development independently, aiming for a just, prosperous, and prosperous society;
- Establishing a fairer and legally certain tax system;
- Implementing administrative and policy reforms through tax consolidation and broadening the tax base; and
- Enhancing voluntary taxpayer compliance.
Taxes in Indonesia are categorized into direct and indirect taxes. Direct taxes are imposed directly on individuals’ income or assets, such as Income Tax (PPh) and Land and Building Tax (PBB). Indirect taxes include Value Added Tax (VAT/PPN), Luxury Goods Sales Tax (PPnBM), and import duties.
Indonesia’s tax system is structured into national and regional obligations. Some taxes are collected by the central government, such as Income Tax (PPh) and VAT (PPN), while others, like Land and Building Tax (PBB) and motor vehicle tax, fall under local government jurisdiction.
Similarly, Malaysia’s tax system follows the self-assessment principle. The country imposes both direct and indirect taxes:
- The primary direct tax is Income Tax, applicable to individuals and corporations.
- Indirect taxes previously included Goods and Services Tax (GST) at a 6% rate, which was replaced in 2018 by the Sales and Service Tax (SST). SST rates vary depending on the sector and type of goods.
Malaysia’s tax system is more centralized than Indonesia’s, with most tax policies determined at the federal level rather than being decentralized to individual states. In contrast, Indonesia’s regional autonomy allows local governments to levy specific taxes.
Tax Administration Structure in Indonesia and Malaysia
In Indonesia, the Directorate General of Taxes (DJP) under the Ministry of Finance oversees tax administration through a broad network comprising the Central Office, Regional Offices, Tax Service Offices (KPP), and Tax Counseling and Consultation Offices (KP2KP). To enhance tax services, DJP has introduced digital platforms such as:
- e-Filing for online tax return submissions
- e-Billing for electronic tax payments
In Malaysia, the Inland Revenue Board of Malaysia (IRBM) administers tax collection. Like Indonesia, Malaysia also utilizes:
- e-Filing for digital tax reporting
- e-Payment for tax transactions
Tax Reforms and Innovations in Indonesia and Malaysia
Indonesia has undertaken significant tax reforms in recent years, focusing on policy changes, service enhancements, and administrative simplifications. A key innovation has been the adoption of digital tax reporting, making it easier for taxpayers to comply with their tax obligations electronically.
Malaysia has also introduced notable tax reforms, including the implementation of GST in 2015, which was later replaced by SST in 2018. The transition from GST to SST was intended to align the tax system with prevailing economic conditions. Additionally, IRBM has leveraged technology to enhance operational efficiency and service quality.
The future of taxation in both Indonesia and Malaysia will depend on continuous innovation in tax administration, stronger taxpayer compliance, and the development of policies that support sustainable economic growth.***
Legal References:
- Law Number 7 of 2021 on the Harmonization of Tax Regulations (“UU HPP”). https://www.regulasip.id/regulasi/17803
- Income Tax Act 1967. https://www.hasil.gov.my/media/znonhmuj/20231101-income-tax-act-1967-act-53.pdf
References:
- Malaysian Inland Revenue Board Act. (Accessed on March 10, 2025, at 08:55 WIB). https://www.hasil.gov.my/perundangan/akta/
- Tax System in Malaysia: Legal Foundations and Tax Provisions. Rahayu Tax Consultant. (Accessed on March 10, 2025, at 09:05 WIB).Sistem Perpajakan di Malaysia: Landasan Hukum dan Ketentuan Perpajakan, Pajak, wajib pajak, konsultan pajak, konsultan pajak rahayu
- Comparison of the Indonesian Tax System with ASEAN Countries. Pajakku. (Accessed on March 10, 2025, at 09:15 WIB).Perbandingan Sistem Perpajakan Indonesia Dengan Negara-negara ASEAN