Indonesia Considers Raising Non-Taxable Income Threshold to Adjust for Inflation

Indonesian economic policymakers are weighing a proposal to adjust the non-taxable income threshold, known locally as PTKP, targeting inflation adjustments by 2027 following discussions at the State Palace in Jakarta.

PTKP Revision Plans for 2027

Coordinating Minister for Economic Affairs Airlangga Hartarto announced that the government plans to review the non-taxable income threshold to align with inflation rates. Speaking after a limited cabinet meeting at the Presidential Palace in Jakarta on September 30, 2026, Airlangga stated that his ministry is calculating the adjustment alongside Minister of Finance Suahasil Nazara.

Labor Union Proposals and Past Precedents

The push to revise the threshold follows ongoing advocacy from labor organizations. In September 2025, labor leaders met directly with President Prabowo Subianto at the Presidential Palace. During that meeting, Confederation of Indonesian Trade Unions (KSPI) President Said Iqbal proposed raising the monthly non-taxable income limit from Rp 4,5 million to Rp 7,5 million.

When the proposal was initially introduced, Ministry of Finance officials noted that the idea required further internal review. At the time, Minister of Finance Purbaya Yudhi Sadewa stated that he had not yet received formal reports on the proposal when questioned by reporters in September 2025.

Fiscal Impact and Economic Analysis

Economic analysts have highlighted potential fiscal trade-offs associated with raising the threshold. Nailul Huda, an economist at the Center of Economic and Law Studies (CELIOS), argued that the current threshold of Rp 4,5 million per month, or Rp 54 million annually, exposes middle-income earners to heavy tax burdens and that reform could help stimulate a sluggish economy.

Conversely, Yusuf Rendy Manilet, a researcher at the Center of Reform on Economics (CORE) Indonesia, pointed to historical precedent from 2013, when a 53% increase in the PTKP threshold resulted in a Rp 13 trillion drop in personal income tax revenues. Rendy cautioned that a larger 70% increase—moving the threshold to Rp 7,5 million—would carry a substantially higher fiscal cost, potentially widening the state budget deficit amid high government expenditures for subsidies, social assistance, health, and education.