Reconstruction of Income Tax Regulation on Income Earned from Construction Services to Conform with Equity Principle

Ruston Tambunan, Sudarsono ., Abd. Rachmad Budiono, Jazim Hamidi


The current Income Tax regulation on income earned from construction services in Indonesia is Government Regulation Number 51 of the Year 2008 as lastly amended by Government Regulation Number 40 of the Year 2009. Income earned from construction services taxed by special final Income Tax flat rate applied on gross income, apart from the general Income Tax rate applied to net income. This paper aims to analyze on the determination of whether the regulation is under equity principle referring to legal and taxation theory, to identify its implications on taxpayers who dealt with construction services and finally to suggest the reconstruction of Income Tax regulation on income earned from construction services reflecting equity principle. The research method used in this paper is the normative method. The result of research concludes that the current regulation on the taxation of income earned from construction services does not reflect horizontal equity as well as vertical equity in taxation due to taxpayers who earn income from construction services bear income tax that not based on the ability to pay which generally imposed on net income. Moreover, the final income tax regulation has implications for some taxpayers right as enacted in Income Tax Law. The researcher suggest that Indonesian Tax Authority is required to enforce the provisions of Article 17 section (1) and Article 31 E section (1)  of Law Number 36 of the  Year 2008 concerning Income Tax where general Income Tax rate  imposed on net income and not treated as final income tax, except for individual carrying business in construction which have gross revenue not more than Rp. 4.8 billion in a fiscal year and not able to provide bookkeeping. Besides, the final income tax rate for individual construction companies should equate to the final income tax flat rate applied to the Micro, Small and Medium Enterprises (MSMEs). Then, the final Income Tax flat rate should not differentiate between those construction companies who have a certificate of construction services and those who have not, as well as the rate not to be differentiated based on the grade of small, medium or large construction companies.

Keywords: Income Tax, Final Tax, Equity, Regulation, Reconstruction, Construction Services

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ISSN (Paper)2224-3240 ISSN (Online)2224-3259

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