The development of technology is rapidly changing the business landscape, including the emergence of cryptocurrency, or digital currency. Unlike the conventional form of currency, cryptocurrency has no physical form and there are now many types of it in the market, which are widely traded as investment instruments.
Annual Income Tax Return for Individual Taxpayers (“IITR”) is an individual tax report that must be made annually and reported no later than the end of March in the following tax year. In the IITR we need to disclose the income, assets, and liabilities received in the year concerned.
Within the reporting of the IITR, there is a specific focus on assets, and one portion of these assets includes investments. Consequently, cryptocurrency as an investment instrument should be reported as assets on the IITR. This article will show you how to report cryptocurrency as an asset on the IITR.
In the Appendix to the Director General of Taxes Regulation Number PER-36/PJ/2015 concerning the Third Amendment to the Director General of Taxes Regulation Number PER-34/PJ/2010 concerning the Forms of Annual Income Tax Returns for Individual Taxpayers and Corporate Taxpayers along with their Filling Instructions, the process of completing Attachment IV to Form 1770 involves providing information on both business-related and non-business-related assets, liabilities, and debts. This includes assets and liabilities owned or controlled by the taxpayer and their family members at the end of the tax year. On the other hand, for the IITR Form 1770S, the guidelines and requirements are outlined in Attachment II of the Director General of Taxes Regulation Number PER-19/PJ/2014.
Cryptocurrency must be reported and submitted in Attachment IV for Form 1770, and in Attachment II for Form 1770S. When filling out these attachments, use the account code 039, which designates cryptocurrencies as another form of investment. Then what about cryptocurrencies that have not been invested and have been cashed back into the country’s currency? For such case, it is considered to be no longer part of an investment and the profit or loss shall be calculated. The calculation then should be reported on the IITR in Appendix I. The calculation of profit or loss is due to the fluctuate value of cryptocurrency. the fluctuating value can make the value of cryptocurrency when cashed back not exactly the same as the value at acquisition.
Based on Article 19 of the Minister of Finance Regulation Number 68/PMK.03/2022 regarding Value Added Tax and Income Tax on Crypto Asset Trading Transactions states that:
“Taxable income received or obtained by:
a. Crypto Asset sellers;
b. Electronic Trading System Providers; or
c. Crypto Asset Miners,
related to Crypto Assets are subject to Income Tax.”
Accordingly, when cryptocurrency is cashed out and is no longer considered as part of the investment, the platform that serves as a trading platform will deduct a final income tax of 0.1% under Article 22 of the Sale of Crypto Assets from the transaction value of the crypto asset, excluding Value Added Tax. An income tax collection of 0.1% is levied if the trading platform has obtained approval from the relevant authority, if a trading platform has not obtained such approval, it will collect 0.2%. The imposition of Income Tax on the sale of Crypto Assets is considered final, any income obtained from the sale of Crypto Assets must be reported in the Annual Tax Return of Taxpayers.
Furthermore, the purchase of Crypto Assets through a swap system will also be subject to a final income tax of Article 22 of the Sale of Crypto Assets, as mentioned in Article 20 paragraph (2) letter b:
“Income related to Crypto Asset transactions as referred to in paragraph (1) includes income from all types of Crypto Asset transactions, including:
b. exchanging Crypto Assets with other Crypto Assets (swap);
Therefore, it is important for both Individual Taxpayers selling crypto assets and those engaging in swap transactions or exchanging one type of cryptocurrency for another to review the list of crypto withholding proofs provided by the platform. These proofs should be attached as an annex to the Annual Tax Return of Individual Taxpayers registered as income and final income tax.