Perdana Wahyu Santosa, Professor of Economics, Dean of the Faculty of Economics and Business at Universitas YARSI, Research Director of GREAT Institute, and CEO of SAN Scientific, argues that in a global economy that is highly sensitive to rapid shifts in sentiment and escalating geopolitical tensions—from optimism to anxiety triggered by interest rates or commodity prices—governments need instruments that work quickly, are measurable, and do not undermine economic fundamentals.
At this point, the policy of Income Tax Article 21 (PPh 21) borne by the government (DTP) for certain workers (fixed and regular salaries up to IDR 10 million per month) in labor-intensive sectors serves as a form of “soft stimulus.” It is not as visible as large-scale social assistance programs, but it directly increases take-home pay and helps maintain consumption momentum.
From a macroeconomic target perspective, the Ministry of Finance (within the 2026 Draft State Budget framework) projects growth in the range of 5.2%–5.8% (with an official target of 5.4%), a level that requires household consumption to remain strong and investment not to weaken. This PPh 21 DTP policy, if properly executed, provides both psychological and material cushioning to prevent a “hard braking” in consumption amid cost pressures and economic uncertainty.
Why It Matters for Growth
In its design, PMK 10/2025 provides PPh 21 DTP incentives for employees in labor-intensive industries—such as footwear, textiles and garments, furniture, as well as leather and leather products—provided both employers and employees meet the eligibility criteria. The incentive applies to gross income throughout 2025 (January–December 2025 tax periods).
For permanent employees, the main threshold is fixed and regular gross income not exceeding IDR 10 million in the first tax period (January or the first month of employment). For non-permanent workers, the limit is IDR 500,000 per day (or IDR 10 million if paid monthly).
What is often overlooked is that this incentive works as a direct purchasing power stabilizer, aimed at protecting lower-middle income groups, preventing downward mobility, and reducing both internal and external economic pressure. At the macro level, additional disposable income among labor-intensive workers tends to quickly return to basic consumption demand—relevant when growth needs to be maintained above 5%.
Fiscal Risks, Formal Bias, and Moral Hazard
Even a well-designed policy carries costs and risks.
First, there is a fiscal trade-off: PPh 21 DTP means the state bears tax revenue that would otherwise be collected. If extended without control, it may weaken an already pressured tax ratio. Therefore, it should remain a targeted and temporary stimulus, not a permanent policy.
Second, there is a formal-sector bias. Since a large share of workers remains in the informal sector, payroll-based incentives naturally benefit formal workers more. This limits effectiveness if the broader objective is national consumption strengthening rather than only supporting those already in the formal system.
Third, there is moral hazard risk. Firms may adjust wage structures or contracts to fall within eligibility thresholds. Without strong oversight, a policy intended for protection could become an administrative optimization tool.
Fourth, consumption behavior matters. Middle-income groups tend to have lower marginal propensity to consume, meaning part of the benefit may be saved. However, this is not necessarily negative, as savings can also stabilize household expectations during uncertainty and prevent sharper consumption drops.
Strategic Recommendations
Three policy enhancements are suggested.
First: data-based monitoring and explicit exit strategy.
The government needs clear indicators: coverage of beneficiaries, changes in take-home pay, retail consumption response, and compliance rates in tax reporting. The policy should have a defined sunset mechanism.
Second: strengthen anti-manipulation safeguards.
Risk-based audits should detect anomalies such as clustering salaries just below the IDR 10 million threshold or artificial restructuring of compensation components.
Third: complement with formalization and productivity upgrading.
Because of structural bias toward formal workers, this policy should be paired with programs that encourage informal workers to enter the formal economy through simple compliance incentives, targeted upskilling, and linkage to labor-intensive industry demand.
Conclusion
PPh 21 DTP up to IDR 10 million is not a tax cut, but a targeted stimulus that—if tightly monitored and time-bound—can support consumption, reduce downward mobility, and help growth approach its target.
The real challenge is not the concept itself, but execution discipline: precise targeting, prevention of manipulation, and avoiding policy permanence that erodes fiscal space.
Yet an important question remains: what incentives are available for the informal sector so that growth becomes more inclusive and stronger?
