RADAR TULUNGAGUNG – The debate over THR tax has resurfaced as Indonesia approaches Eid al-Fitr 2026. Despite repeated objections from labor unions, the government confirmed that holiday allowances for private sector workers will still be subject to income tax.

The THR tax policy applies to Tunjangan Hari Raya (THR), a mandatory holiday allowance paid to employees before major religious celebrations. Although many workers hope to receive the allowance without deductions, the government maintains that THR remains part of taxable income.

According to officials, the THR tax falls under Income Tax Article 21 (PPH 21). This regulation requires employers to calculate the tax based on an employee’s total income, including both monthly salary and holiday allowance.

The issue has triggered renewed discussion among workers, especially as the Eid holiday approaches and millions of employees prepare for additional spending.

Government Confirms THR Still Subject to Income Tax

The government reiterated that the THR allowance remains taxable under existing regulations.

Yassierli confirmed that the policy will continue to apply to private sector employees. According to him, companies must follow the tax provisions already stipulated in national regulations.

The legal basis for THR payments and related tax treatment appears in the Law No. 13 of 2003 on Manpower, which regulates employee rights and company obligations regarding holiday allowances.

Under this regulation, employers must distribute THR to workers before major religious holidays such as Eid al-Fitr.

Companies must pay the allowance no later than seven days before the holiday begins.

Officials emphasized that THR serves as additional income for workers and therefore falls within the scope of taxable earnings.

Progressive Tax System Determines THR Tax Rate

Unlike some allowances that carry a fixed deduction, the THR tax does not use a single percentage rate.

Instead, authorities apply a progressive tax scheme known as the effective average rate system.

This method means the tax deduction can vary widely depending on the employee’s income level.

The tax rate can range from zero percent to as high as 34 percent.

Authorities calculate the deduction by combining the employee’s monthly salary with the THR payment to determine the total gross income for the period.

Once the total income is determined, the tax system assigns the appropriate rate based on the relevant income bracket.

As a result, employees with higher earnings may experience larger deductions compared to workers in lower income categories.

Workers Voice Concerns Over Tax Deductions

The THR tax policy continues to face criticism from labor groups and private sector workers.

Many workers argue that taxing the holiday allowance reduces the financial benefit that THR should provide ahead of the Eid celebration.

Labor unions have repeatedly called for the government to exempt THR from income tax.

They believe that removing the tax would allow workers to receive the full value of the benefit.

For many families, THR plays an important role in covering increased expenses during the holiday period, including travel, food, and traditional celebrations.

Critics say that the combination of salary and THR in tax calculations can trigger a temporary spike in taxable income.

This increase may push workers into a higher tax bracket, resulting in a larger deduction than expected.

Because of this effect, labor groups argue that THR taxation places an additional burden on employees during a time when they need greater financial flexibility.

Government Maintains Current Tax Policy

Despite the criticism, the government has shown no indication of changing the THR tax policy for 2026.

Officials maintain that the taxation of THR follows the broader principle that all forms of employee income fall under income tax regulations.

They also emphasize that the progressive tax system ensures fairness by adjusting the rate according to individual income levels.

Authorities encourage workers and companies to understand how the tax calculation works so that employees can estimate the net amount they will receive.

As Eid al-Fitr approaches, the debate surrounding THR taxation is likely to continue.

For now, however, the government’s position remains clear: the holiday allowance remains taxable under Indonesia’s income tax law, and companies must calculate the deduction according to the applicable PPH 21 rules.