Constitutional Court Receives Material Test on Pension Taxation

Indonesia’s Constitutional Court has accepted two material‑test petitions, case No. 170/PUU‑XXIII/2025 and No. 186/PUU‑XXIII/2025, filed by a group of private‑sector employees.

The applicants argue that Articles 4(1) and 17 of the Income Tax Law conflict with Articles 28D(1) and 34(2) of the 1945 Constitution and request that the government cease taxing these incomes. Indonesia currently applies an EET (exempt‑exempt‑taxable) model, exempting contributions and investment returns while taxing pension benefits at 0 % up to Rp50 million gross and 5 % above that. This regime operates amid a target of pension‑fund assets equal to 11.2 % of GDP by 2029 and a formal participation rate below 15 %.

A ruling in favor of the petitions could lower the tax burden on retirees, potentially boosting public participation in pension schemes. The outcome would also affect fiscal revenue and the government’s effort to build a social‑protection system for an aging population, whose old‑age dependency ratio is projected to reach 17.76 in 2024.