Why Taxing Non-Cash Benefits Matters
Benefits in kind—often called BIK—include non-cash compensation such as free meals, transportation, housing facilities, or other workplace perks. For years, many of these benefits in Indonesia were not clearly treated as taxable income for employees. Companies frequently used them as part of compensation packages to balance employee welfare and tax efficiency.
This practice created a policy gap. Two employees receiving similar economic value—one in cash and one in non-cash benefits—could face different tax burdens. Policymakers viewed this as a fairness issue and a potential erosion of the tax base.
Ministry of Finance Regulation No. 66 of 2023, issued as a derivative of Indonesia’s Tax Harmonization Law, formally classifies economically valuable benefits in kind as taxable income. At the same time, employers are allowed to treat these benefits as deductible expenses.
According to the study by Wulandari, Handayati, and Irafahmi of Universitas Negeri Malang, this regulation represents a structural reform in Indonesia’s tax system. It expands the tax base, strengthens legal certainty, and aligns domestic practice with international standards where fringe benefits are already taxed.
How the Research Was Conducted
The researchers from Universitas Negeri Malang used a qualitative literature review approach. Instead of surveying companies directly, they analyzed:
- Government regulations, including Law No. 7/2021 and PMK No. 66/2023
- Academic journals on tax planning, financial management, and employee compensation
- OECD reports and international policy studies
- Prior research on corporate governance and payroll taxation
They applied thematic content analysis to identify recurring patterns in how benefit in kind taxation influences tax planning, financial management, and corporate governance.
This approach allowed the authors to synthesize national and international perspectives and evaluate how the new Indonesian regulation fits into broader tax reform trends.
Key Findings: A Shift in Corporate Behavior
The study highlights several major impacts of taxing benefits in kind under PMK No. 66 of 2023.
1. Reduced Scope for Tax Arbitrage
Before the regulation, companies often used non-cash benefits as an implicit tax planning tool. Shifting part of compensation from cash to non-cash could reduce payroll tax exposure.
With benefits in kind now classified as taxable income, this strategy becomes less effective. The study concludes that compensation-based tax arbitrage is significantly narrowed.
2. A Move Toward Compliance-Oriented Tax Planning
The research emphasizes a shift in mindset. Tax planning is no longer focused solely on minimizing tax liabilities. It increasingly prioritizes:
- Legal certainty
- Risk management
- Administrative feasibility
- Corporate reputation
Wulandari and her colleagues argue that tax planning must now be integrated into broader governance and compliance frameworks.
3. New Cost Structures for Companies
Taxing benefits in kind introduces recurring fiscal obligations. Companies must now incorporate these additional costs into:
- Operating budgets
- Payroll systems
- Cash flow forecasts
- Financial reporting processes
Labor-related expenses are typically “sticky,” meaning they are difficult to reduce quickly without affecting productivity or employee morale. As a result, firms must strengthen budgeting and liquidity management.
4. Selective Adjustment of Employee Benefits
Contrary to early fears, the study finds that companies do not automatically eliminate non-cash benefits. Instead, they reassess the strategic value of each benefit.
Benefits closely linked to productivity—such as meals, transportation, or housing support—are more likely to be retained. Less essential perks may be redesigned or reduced.
Some firms adopt “gross-up” mechanisms, where employers absorb the additional tax burden to maintain employees’ net income. Although this increases company costs, it helps preserve fairness and morale.
Implications for Business and Public Policy
The findings from Universitas Negeri Malang suggest that PMK No. 66 of 2023 has implications far beyond tax compliance.
For Businesses
Companies must:
- Reevaluate compensation structures
- Integrate tax, finance, and HR systems
- Develop clear valuation methods for non-cash benefits
- Strengthen internal controls and documentation
The regulation encourages more transparent and standardized compensation practices.
For Employees
While employees may face higher taxable income, selective benefit retention and gross-up strategies can mitigate direct income loss. Transparency and communication play a critical role in maintaining trust.
For Policymakers
The reform supports:
- Broader tax base expansion
- Improved horizontal equity
- Greater alignment with global tax standards
- Enhanced fiscal sustainability
However, the study warns that smaller firms may face higher compliance burdens compared to large corporations with more administrative capacity. Clear guidance and technical assistance are essential for equitable implementation.
A Structural Reform, Not a Technical Adjustment
Aprilia Wulandari and her co-authors from Universitas Negeri Malang describe PMK No. 66 of 2023 as more than a technical tax rule.
In their analysis, the regulation “functions as a structural reform that reshapes corporate approaches to benefit in kind, tax planning, and financial management.” By requiring companies to internalize the fiscal cost of non-cash compensation, the rule promotes transparency, accountability, and integration between tax reporting and financial systems.
The research positions Indonesia’s benefit in kind taxation within a global trend toward comprehensive income taxation. Many countries already impose specific fringe benefits tax regimes. Indonesia is now aligning with these international practices.
Author Profiles
Aprilia Wulandari is a researcher at Universitas Negeri Malang specializing in taxation and corporate financial management.
Puji Handayati, Ph.D. is a lecturer at Universitas Negeri Malang with expertise in accounting and financial governance.
Diana Tien Irafahmi, Ph.D. is a lecturer at Universitas Negeri Malang focusing on taxation policy and fiscal management.
Together, the authors contribute to understanding how tax reform influences corporate strategy and financial systems in emerging economies.
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