Conditions for Deducting Contributions from Gross Income

The Income Tax Law (UU PPh) lists four types of contributions that can be deducted from gross income when calculating taxable income. These are contributions for national disaster relief, research and development, educational facilities, and sports development. The provisions appear in Article 6 paragraph (1) letters i‑m and Government Regulation No 93/2010.

Taxpayers may deduct such contributions only if four conditions are satisfied: they must have fiscal net income from the previous tax year, the donation must not cause a loss, it must be supported by valid evidence, and the recipient must have a Taxpayer Identification Number (NPWP) unless exempted. The total deduction is capped at 5 % of the prior year’s net fiscal income and cannot be made to related parties. Contributions may be cash or goods, with the value of goods determined by acquisition cost, fiscal book value, or cost of goods sold.

Meeting these requirements allows taxpayers to lower their tax liability legally, while the government limits deductions to protect fiscal revenue. Accurate recording and verification of the recipient’s NPWP are essential for compliance. The rule also encourages corporate and individual donors to support social causes without excessively reducing tax obligations.