Indonesia introduced the TER system (Tarif Efektif Rata-rata, or Average Effective Rate) in January 2024 to simplify how employers calculate monthly income tax withholding. Before TER, monthly PPh 21 calculations required multiple steps involving annualized projections, deductions, and progressive rate applications. The result was inconsistent withholding throughout the year, often leaving employees with a large adjustment in December.

TER replaces that complexity with a single percentage applied to gross monthly income. The rate depends on the employee's income level and family status. Employers use TER for January through November, then reconcile using the standard progressive rates in December.

This guide explains how TER works, which category applies to which employees, and what employers need to do to stay compliant.

What is TER and why it was introduced

TER is a withholding method, not a new tax. It does not change how much tax an employee owes over the course of a year. It only changes how that tax is calculated and withheld each month.

Under the old system, employers had to estimate annual income, apply deductions, calculate taxable income, and then determine monthly withholding using progressive rates. This often resulted in uneven deductions month to month, and employees frequently faced large underpayments or overpayments in December when the final reconciliation was done.

TER simplifies this by providing a fixed percentage rate based on two factors: the employee's gross monthly income and their PTKP status (non-taxable income allowance, which depends on marital status and dependents). The employer looks up the applicable rate in the TER table and applies it directly to gross income. No annualization, no monthly recalculation of deductions.

The legal basis for TER is Government Regulation No. 58 of 2023 (PP 58/2023) and Minister of Finance Regulation No. 168 of 2023 (PMK 168/2023).

How to calculate PPh 21 using TER

The TER calculation is straightforward:

Monthly PPh 21 = Gross Monthly Income × TER Rate

Gross monthly income includes salary, fixed allowances, bonuses, THR, and any other taxable compensation received in that month. Unlike the old method, you do not need to separate regular income from irregular income for the monthly calculation.

January through November

For each month from January to November, employers apply the TER rate to gross income. If an employee receives a bonus or THR in a particular month, that amount is added to their regular salary, and the combined total determines which TER rate applies for that month.

This means months with bonuses will have higher withholding, and regular months will have consistent withholding. The rates are designed so that over 11 months, the cumulative withholding approximates what the employee will owe for the year.

December reconciliation

In December (or when an employee leaves mid-year), employers must calculate the actual annual tax liability using the standard progressive rates under Article 17 of the Income Tax Law. This involves:

• Calculating total gross income for the year
• Subtracting allowable deductions (occupational expenses at 5% up to IDR 500,000/month, pension contributions)
• Subtracting PTKP to arrive at taxable income
• Applying progressive rates (5% to 35%) to taxable income
• Subtracting total TER withholding from January to November

The difference is the December withholding amount. If TER withholding exceeded the actual liability, the employee receives a refund through payroll. If it fell short, the additional amount is withheld in December.

TER categories and rate tables

There are three TER categories for monthly withholding, determined by the employee's PTKP status:

Each category has its own rate table with rates ranging from 0% to 34%, depending on the gross monthly income bracket. The full tables are published in the appendix of PP 58/2023 and contain 44 rates for Category A, 40 for Category B, and 41 for Category C.

Sample TER A rates

To give you an idea of how the rates work, here are selected brackets from TER Category A:

Employees earning below the PTKP threshold (approximately IDR 4.5 million to 5.4 million per month, depending on status) have a 0% rate, meaning no tax is withheld.

Daily TER for non-permanent employees

Non-permanent employees who receive daily, weekly, or piece-rate wages are subject to daily TER rates instead of monthly rates. There are only two daily rates:

• 0% for daily income up to IDR 450,000
• 0.5% for daily income between IDR 450,000 and IDR 2.5 million

If a non-permanent employee's daily income exceeds IDR 2.5 million, the standard Article 17 progressive rates apply instead of the daily TER.

Example: TER calculation for a permanent employee

Mr. A is a permanent employee at PT XYZ. He is married with no dependents (K/0), so he falls under TER Category A. His monthly salary is IDR 10,000,000.

Monthly withholding (January to November)

Looking at the TER A table, IDR 10 million falls in the bracket with a 2.25% rate.

Monthly PPh 21 = IDR 10,000,000 × 2.25% = IDR 225,000

This amount is withheld each month from January to November, totaling IDR 2,475,000 over 11 months.

December reconciliation

In December, PT XYZ calculates Mr. A's actual annual tax liability:

• Annual gross income: IDR 120,000,000
• Less occupational expense (5%, max IDR 6M): IDR 6,000,000
• Net income: IDR 114,000,000
• Less PTKP (K/0): IDR 58,500,000
• Taxable income: IDR 55,500,000
• Annual tax at 5%: IDR 2,775,000

December withholding = IDR 2,775,000 - IDR 2,475,000 (already withheld) = IDR 300,000

Mr. A pays slightly more in December because the TER approximation was slightly lower than the actual liability. The difference is typically small when income is consistent throughout the year.

How TER handles bonuses and THR

Under TER, bonuses and THR (religious holiday allowance) are simply added to the month's gross income. There is no separate calculation.

For example, if an employee normally earns IDR 10 million per month and receives a THR of IDR 10 million in a particular month, their gross income for that month is IDR 20 million. The employer looks up the TER rate for IDR 20 million and applies it to the full amount.

This is much simpler than the old method, which required separate annualization calculations for irregular income. It also means that months with bonuses will have noticeably higher withholding, which is expected and will balance out over the year.

Employer compliance requirements

Employers using TER must follow these steps:

• Determine each employee's PTKP status and TER category at the beginning of the year or when hired. Update if status changes (marriage, new dependents).
• Apply the correct TER rate to gross monthly income for January through November.
• Deposit withheld tax to the State Treasury by the 15th of the following month.
• File the monthly PPh 21 return via Coretax by the 20th of the following month.
• Perform December reconciliation using Article 17 progressive rates to determine final withholding.
• Issue Form 1721-A1 to each employee showing total income and tax withheld for the year.

Late payment or filing results in interest and penalties that cannot be deducted as a business expense.

Managing payroll and PPh 21 compliance

TER simplifies monthly calculations, but employers still need to track employee status, apply the correct rates, and perform annual reconciliation accurately. Mistakes in withholding can result in penalties for the company and unexpected tax bills for employees.

We handle payroll and tax compliance for companies operating in Indonesia. If you need help setting up TER calculations, managing monthly filings, or ensuring your December reconciliation is correct, reach out to our team.