Indonesian labor advocate asks to remove taxes on retirement and severance pay

Said Iqbal, a special advisor to the Indonesian President on labor affairs, has called on the government to eliminate taxes on severance pay and retirement funds. He specifically requested that the tax rate for "Jaminan Hari Tua" (JHT), or old-age security funds, be set at zero percent and that progressive tax rates on these payouts be abolished.

"Is it appropriate for social savings, which are a state program to protect its people, workers, and employees, to be taxed on their savings?" Iqbal questioned during a meeting with Finance Minister Purbaya Yudhi Sadewa in Jakarta. He argued that workers who experience multiple layoffs face increasingly higher tax rates when they withdraw their JHT. While the initial withdrawal might be taxed at 0% or 5%, subsequent withdrawals after re-employment and further layoffs could face progressive taxes ranging from 15% to 30%.

Iqbal also proposed increasing the tax-exempt threshold for JHT payouts. Currently, withdrawals up to Rp 50 million are tax-free, a regulation established in 2009. Iqbal deems this limit outdated due to inflation and suggests raising it to around Rp 400 million. This figure is based on the 2009 equivalent value of Rp 50 million, which was approximately 152 grams of gold, now valued at roughly Rp 400 million.

In addition to JHT, Iqbal advocated for the removal of taxes on holiday allowances (THR), severance pay, and pension benefits. He views these components as essential forms of state protection for workers and argues they should not be taxed upon receipt.

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Is it appropriate for social savings, which are a state program to protect its people, workers, and employees, to be taxed on their savings?