PMK 105/2025 Explained: What Every Employer Must Know About the New PPh 21 Exemption

Introduction, Why PMK 105/2025 Matters to Employers

Indonesia’s employment income tax framework continues to evolve as the government balances revenue collection with workforce protection and economic stability. For employers, these regulatory shifts directly affect how salaries are structured, how payroll is processed, and how compliance risks are managed. Changes to PPh 21 rules are particularly impactful because they sit at the intersection of HR administration, finance operations, and daily employee relations.

A major turning point comes with PMK 105/2025, which introduces a PPh 21 exemption for employees earning up to IDR 10 million per month. This policy adjustment is more than a technical update, it reshapes monthly withholding obligations and requires employers to reassess how payroll systems calculate, apply, and report income tax. While the exemption can reduce the immediate tax burden for eligible employees, it also increases the need for accuracy, consistency, and clear internal controls on the employer side.

For HR and payroll teams, the regulation affects salary planning, system configuration, and employee communication. From a business perspective, it influences labor cost forecasting and compliance exposure if the exemption is misapplied. This article breaks down who qualifies, what employers must do, when the rules apply, how reporting works, and where the main risks lie, so businesses can adapt confidently and stay compliant.

What Is PMK 105/2025? Legal Background and Purpose

PMK 105/2025 is a Minister of Finance Regulation that updates how employee income tax (PPh 21) is applied in Indonesia, specifically by introducing an exemption threshold for certain levels of monthly earnings. As a ministerial regulation (Peraturan Menteri Keuangan), it functions as an implementing rule that refines how existing tax laws are applied in practice, rather than replacing the underlying statutory framework.

The regulation sits within Indonesia’s broader post-pandemic tax policy direction, which seeks to balance state revenue needs with economic recovery and workforce resilience. Over the past few years, the government has gradually adjusted tax mechanisms to ease the burden on individual taxpayers while improving compliance efficiency. In this context, the exemption for lower-to-middle income employees is designed to preserve purchasing power and support domestic consumption without dismantling the self-assessment system.

From a legal standpoint, PMK 105/2025 operates within the PPh 21 regime governed by the Income Tax Law (UU PPh). It does not eliminate employer withholding obligations but modifies how taxable income is calculated at the payroll level. Employers must still administer payroll, calculate eligibility, and report accurately, only the tax treatment for qualifying income bands changes.

The government introduced this exemption for several reasons. First, it provides targeted tax relief to employees with modest monthly earnings. Second, it simplifies payroll administration by reducing routine withholding for a large segment of the workforce. Finally, it supports administrative efficiency by allowing tax authorities to focus enforcement and monitoring efforts on higher-risk or higher-value tax profiles. Understanding this policy intent helps employers apply the rules correctly and anticipate future compliance expectations.

Who Qualifies for the PPh 21 Exemption? Eligibility Criteria Under PMK 105/2025

The core eligibility rule is straightforward: employees whose monthly income does not exceed IDR 10 million may qualify for the PPh 21 exemption. However, applying this threshold in practice requires employers to clearly understand what counts as “income” and how different employment arrangements are treated under PMK 105/2025.

For payroll purposes, income generally includes fixed and regular components such as basic salary and routine allowances (for example, position, transportation, or meal allowances paid consistently each month). These elements are assessed cumulatively to determine whether the IDR 10 million ceiling is exceeded. Employers should be cautious not to assess only base salary in isolation, as overlooking regular allowances may lead to incorrect exemption application.

Certain benefits and fringe items may be treated differently depending on their nature and tax classification. Non-cash benefits, reimbursable expenses, or benefits-in-kind that are not treated as taxable income under prevailing PPh 21 rules may fall outside the exemption calculation. Clear internal payroll categorization is therefore critical to avoid misinterpretation.

For part-time employees, contract staff, or workers with variable pay, eligibility is assessed based on actual monthly income, not annualized projections. Fluctuating bonuses, commissions, or overtime payments can push income above the threshold in certain months, temporarily disqualifying the employee from the exemption for that period. This means eligibility can change month to month.

From a compliance perspective, PMK 105/2025 requires employers to apply the exemption dynamically and consistently, supported by accurate payroll records and transparent income breakdowns. Misjudging eligibility, whether by over-applying or under-applying the exemption can create downstream reporting and withholding risks during tax reviews or audits.

How the PPh 21 Exemption Works in Practice Under PMK 105/2025

In practical payroll terms, the PPh 21 exemption changes how employers assess monthly taxable income before calculating withholding. Under PMK 105/2025, the process starts with determining the employee’s total gross income for the month, including basic salary and regular allowances. If this total does not exceed IDR 10 million, no PPh 21 is withheld for that month, regardless of the employee’s annualized income projection.

Previously, PPh 21 calculations relied heavily on annualized income assumptions, meaning even lower-paid employees could face monthly withholding based on projected yearly earnings. The new approach simplifies this by focusing on actual monthly figures. For example, an employee earning IDR 9.5 million per month would previously still have PPh 21 deducted based on annual calculations. Under the exemption, that deduction no longer applies, resulting in higher take-home pay.

The exemption is applied from the first month it becomes effective, not cumulatively at year-end. This means employers do not wait to reconcile annual income before granting relief. Each payroll period is assessed independently, creating a more responsive and employee-friendly system.

However, income fluctuations require careful monitoring. If an employee earns IDR 9.8 million in January (exempt), IDR 10.5 million in February (taxable), and then falls back below the threshold in March, the exemption applies only in the qualifying months. There is no carry-over or averaging mechanism.

To manage this correctly, payroll teams must maintain accurate, month-by-month income tracking and ensure payroll systems are updated to reflect these conditional rules. Proper application of PMK 105/2025 in daily payroll operations is essential to avoid under-withholding, over-withholding, and reporting inconsistencies later in the tax year.

Payroll Processes Employers Must Adjust to Comply with PMK 105/2025

The introduction of the PPh 21 exemption requires employers to make practical adjustments across their payroll workflows, starting with system configuration. HRIS and accounting software must be updated to recognize monthly income thresholds automatically, ensuring that employees earning up to IDR 10 million are excluded from withholding calculations in eligible months. Without proper system logic, manual overrides increase the risk of inconsistency and error.

Payslip formats also need revision. Under the new regime, payslips should clearly show gross income, exempted PPh 21 amounts, and any taxable portion where applicable. Transparent presentation not only supports employee understanding but also strengthens internal controls when payroll data is reviewed or audited.

Another key area is payroll reconciliation. Employers must ensure that PPh 21 calculations align with individual employee records, employment status, and income components. Monthly cross-checks between payroll output, HR data, and accounting entries help identify discrepancies early, especially for employees with variable pay or multiple allowances.

Consistent documentation is critical. Employers should retain detailed payroll reports, system calculation logs, and approval records to demonstrate how exemptions were applied. These audit trails become essential evidence if payroll practices are later questioned by tax authorities.

Ultimately, compliance under PMK 105/2025 is not just about applying the exemption correctly once, it requires repeatable, well-documented processes that stand up to scrutiny. As payroll cycles continue throughout the year, maintaining disciplined records and system integrity ensures the exemption delivers its intended benefits without creating future compliance risks under PMK 105/2025.

Reporting & Tax Filing Implications Under PMK 105/2025

The PPh 21 exemption changes not only payroll calculations but also how employers handle monthly and annual tax reporting. For monthly obligations, withholding results affected by the exemption must be accurately reflected in the relevant SSP/SSKP reporting, ensuring that the reported payable tax aligns with the adjusted payroll output. Even when no PPh 21 is due for certain employees, reporting remains mandatory and must be completed with correct zero or reduced figures.

At the annual level, the exemption impacts how employee income and withheld tax are consolidated in the employer’s SPT. Employers must ensure that income subject to exemption is properly classified so annual summaries remain consistent with monthly filings. Inaccurate mapping between payroll data and tax forms can trigger reconciliation issues or follow-up inquiries.

Certain form fields or internal reporting codes may need adjustment to accommodate the exemption logic, particularly in digital filing systems. Failure to update these fields often results in mismatches that require corrective filings.

Errors in reporting can lead to administrative corrections, delayed processing, or penalties if discrepancies are deemed material. While the regulation aims to simplify compliance, it also demands careful system alignment. In practice, PMK 105/2025 reduces tax burden only when employers maintain precise reporting configurations and disciplined filing practices throughout the year.

HR and Employer Compliance Obligations Under PMK 105/2025

Beyond payroll adjustments, employers carry internal compliance duties to ensure the PPh 21 exemption is applied consistently and transparently. One of the first steps is clearly communicating policy changes to employees, especially explaining how the exemption affects take-home pay and payslip presentation. Transparent messaging helps manage expectations and reduces confusion when figures change.

Companies should also formalize the exemption mechanism within their HR manuals and payroll policies. Documenting eligibility criteria, calculation methods, and internal approval processes creates a clear reference point during internal reviews or external inspections. These records demonstrate that the exemption is applied systematically rather than on an ad hoc basis.

Training is equally important. HR, payroll, and finance teams must understand the operational details of the exemption, including income components, thresholds, and reporting implications. Assigning clear accountability, who validates data, who approves calculations, and who files reports reduces the risk of oversight.

From a risk management perspective, misclassification of income or inconsistent application across employees can trigger compliance issues. Regular internal checks and cross-department coordination help identify errors early. Ultimately, disciplined governance ensures PMK 105/2025 delivers its intended benefits without exposing employers to avoidable tax or audit risks.

Common Pitfalls & Employer Mistakes to Avoid Under PMK 105/2025

As helpful as the PPh 21 exemption is, many employers still stumble during implementation. One frequent mistake is applying the exemption to income components that are not eligible, such as certain taxable benefits or irregular payments. Without a clear breakdown of what qualifies as “income” under the regulation, payroll figures can quickly become inaccurate.

Another common issue is failing to update payroll systems and HRIS configurations on time. Manual workarounds increase the risk of calculation errors, especially when salary structures are complex or change frequently. Outdated payslip formats and reporting templates can also lead to incorrect filings, creating discrepancies between payroll data and tax submissions.

Reconciliation is often overlooked. Employers who do not routinely match payroll records with monthly and annual tax reports may miss inconsistencies that later trigger corrections or inquiries. Salary fluctuations are another risk area, mid-month changes that push income above or below the exemption threshold require careful handling to avoid misapplication.

By proactively reviewing systems, documentation, and internal controls, employers can avoid these pitfalls and ensure PMK 105/2025 is implemented accurately and defensibly.

Strategic Benefits for Employers and Employees Under PMK 105/2025

The introduction of the PPh 21 exemption delivers tangible advantages for both businesses and their workforce. For employees earning up to IDR 10 million per month, reduced income tax deductions translate directly into higher take-home pay, improving day-to-day financial wellbeing. From the employer’s perspective, this eases payroll administration by simplifying monthly calculations for a significant segment of staff, allowing HR and finance teams to focus on higher-value compliance and planning work.

From a budgeting standpoint, the regulation can enhance compensation competitiveness without increasing gross salaries. Companies may reposition their pay structures more efficiently, especially in sectors reliant on mid-level talent, by leveraging the exemption to offer more attractive net income outcomes. Over time, this can support retention and recruitment strategies, particularly when combined with transparent communication around payroll changes.

Beyond immediate cost considerations, the policy aligns with broader employee welfare initiatives. When tax rules are clearly understood and consistently applied, trust between employer and employee improves. This is where strategic alignment becomes critical, HR, finance, and management teams must jointly assess how PMK 105/2025 fits into workforce planning, remuneration design, and compliance governance.

Ultimately, understanding PMK 105/2025 is not just about technical tax application; it is a strategic lever for aligning people management, financial efficiency, and long-term organizational stability.

Looking Ahead: How PMK 105/2025 Fits Into Indonesia’s Tax Simplification Trend

Indonesia’s tax landscape is steadily moving toward greater simplification, transparency, and digital integration. Recent initiatives such as the rollout of Coretax reflect the government’s commitment to streamlining reporting, strengthening data consistency, and reducing administrative friction for both taxpayers and authorities. Within this broader reform agenda, PMK 105/2025 plays a complementary role by simplifying the treatment of employee income tax and reducing routine payroll complexity for employers.

As digital tax systems mature, regulations affecting PPh 21 are expected to become more interconnected. Future policy adjustments may further harmonize exemption thresholds, reporting mechanisms, or payroll disclosures to align with automated tax platforms. Employers should anticipate that guidance notes, Director General of Taxes circulars, or technical instructions may follow to clarify implementation details and address practical scenarios not fully covered in the initial regulation.

This evolving environment makes vigilance essential. While PMK 105/2025 offers immediate relief and efficiency, its long-term value depends on consistent application alongside emerging compliance tools and policy refinements. Employers that actively monitor regulatory updates, adjust internal systems promptly, and maintain open communication between HR, payroll, and finance functions will be better positioned to navigate Indonesia’s ongoing tax modernization with confidence.