CoreTax Explained: What Foreign Investors Need to Know About Indonesia's New Tax System

What is CoreTax?

Indonesia's decision to implement CoreTax stems from longstanding challenges in its tax administration system. The previous framework, based on the Sistem Informasi Direktorat Jenderal Pajak (SIDJP) implemented in 2002, had become increasingly inadequate for managing the complexity of modern business transactions and Indonesia's growing digital economy.

Contributing Advisor

Cruisietta Kaylana

Assistant Manager, Human Resources

The modernization imperative became particularly acute as Indonesia faced several critical challenges. The country's tax-to-GDP ratio of approximately 12 percent remained below global standards, indicating significant room for improvement in tax collection efficiency. Additionally, the fragmented nature of existing systems—requiring taxpayers to navigate separate platforms for e-Filing, e-Billing, e-Faktur, and other services—created compliance burdens that deterred business investment and facilitated tax evasion. The CoreTax system aims to integrate these services into a single platform, which would reduce compliance burdens and improve efficiency.

Core Functions and Objectives of the CoreTax System

CoreTax represents a comprehensive reimagining of tax administration, built around five core business processes that integrate previously separate functions:

• Registration and taxpayer management: The system introduces a unified approach to taxpayer registration, incorporating new features such as facial recognition for identity verification and automatic generation of Tax Identification Numbers (NPWP) for individuals using their National Identity Numbers (NIK). For businesses, the system streamlines the process of obtaining Taxable Entrepreneur (PKP) status and managing corporate tax obligations.
• Tax return management: CoreTax consolidates all tax return processes into a single platform, eliminating the need for multiple applications. The system automatically generates tax invoice serial numbers and provides real-time validation of submitted data. Processing times have been dramatically reduced, with tax return submission dropping from 29.28 seconds to just 3.93 seconds according to official DJP data.
• Payment processing: The system introduces three streamlined billing code generation schemes, including automated generation linked to tax return filing, payment of tax assessments, and self-service creation for specific obligations. A significant innovation is the introduction of a "tax deposit" feature, functioning like an e-wallet system that allows taxpayers to pre-fund their tax obligations.
• Taxpayer services: CoreTax provides comprehensive taxpayer account management through its Taxpayer Account Management (TAM) feature, offering a unified view of all tax-related information and transactions. This includes real-time access to payment histories, outstanding obligations, and compliance status.
• Compliance monitoring: The system integrates data from multiple sources, including population databases, third-party transaction records, and e-commerce platforms, enabling comprehensive compliance monitoring and reducing opportunities for tax evasion.

How CoreTax differs from the previous DJP (Directorate General of Taxes) system?

The transformation from the legacy SIDJP system to CoreTax represents a fundamental architectural shift. While the previous system operated through multiple, largely disconnected platforms, CoreTax functions as a unified ecosystem built on Commercial Off-The-Shelf (COTS) technology.

Key differentiators include:

Legal framework behind CoreTax implementation

The primary legal framework begins with Presidential Regulation No. 40 of 2018 concerning Tax Administration System Renewal, which provided the initial mandate for developing a modernized tax administration system.

This foundational regulation was operationalized through Minister of Finance Regulation No. 81 of 2024 (PMK-81), which serves as the comprehensive legal framework for CoreTax implementation. PMK-81 represents a significant consolidation effort, revoking 42 existing tax regulations and integrating their provisions into a unified regulatory framework.

Implementation timeline and rollout phases

The CoreTax implementation followed a carefully structured timeline, though not without challenges. The system's development began in earnest following the 2018 Presidential Regulation, with the LG CNS-Qualysoft Consortium selected as the primary contractor.

• Pre-implementation phase (December 16-31, 2024): This critical period allowed taxpayers to access the system for testing and familiarization purposes. Beginning December 24, 2024, taxpayers could log in to perform basic functions such as password reset and data verification.
• Official launch (January 1, 2025): CoreTax became fully operational for all tax obligations beginning with the January 2025 tax period. This marked the transition from the legacy system to the new platform for most core tax functions.
• Parallel operation period (January 2025 - ongoing): Recognizing initial implementation challenges, the DJP and Parliament agreed to operate CoreTax alongside legacy systems for certain functions. This includes continued use of DJP Online for annual tax return filing for 2024 tax year obligations and parallel operation of e-Faktur desktop applications for specific taxpayer categories.
• Phased migration: The complete transition to CoreTax for all functions is planned to occur gradually, with annual tax returns for the 2025 tax year (filed in 2026) being the first to be submitted exclusively through the new system.

Compliance obligations

CoreTax introduces several new compliance obligations that particularly affect foreign investors and multinational corporations operating in Indonesia.

• All businesses must ensure their registration data is current and accurate within the CoreTax system. This includes updating person-in-charge (PIC) designations, contact information, and business activity classifications. For foreign investors, this is particularly important as the system requires PIC individuals to have valid Tax Identification Numbers (NPWP) and, for foreign nationals, appropriate residence permits (KITAS).
• Businesses must obtain and maintain valid electronic certificates for digital document signing within the CoreTax system. This requirement extends to all tax-related transactions, including invoice generation, tax return submission, and payment processing.
• The system's real-time processing capabilities create new expectations for timely compliance. Businesses must adapt their internal processes to meet the system's enhanced monitoring capabilities, which can detect discrepancies and compliance issues immediately.
• Under the new regulations, individual taxpayers who operate businesses or practice independent professions and maintain bookkeeping are now required to withhold certain taxes, expanding the scope of withholding obligations beyond the previous system.
• The system's integration with banking and financial institution data creates enhanced monitoring of cross-border transactions, requiring greater attention to transfer pricing documentation and international tax compliance.

Impact on businesses

The implementation of CoreTax has fundamentally altered the tax reporting landscape for businesses operating in Indonesia. The most significant change involves the consolidation of previously separate reporting processes into a unified digital platform that demands new operational approaches from taxpayers.

Businesses no longer need to navigate multiple applications for different tax functions. Where previously a company might use e-Faktur for VAT invoices, e-Billing for payments, and DJP Online for return filing, CoreTax integrates these functions into a single interface.

The system's real-time processing capabilities mean that errors and discrepancies are identified immediately during submission rather than after processing. Companies report that while this increases accuracy, it also demands higher-quality data preparation and more skilled personnel to handle the immediate feedback loop.

CoreTax's integration with external databases means that supporting documentation must be more comprehensive and accurate. The system cross-references submitted data with information from banks, customs authorities, and other government agencies, making it more difficult to submit incomplete or inconsistent information.

PMK-81 adjusted several compliance deadlines to align with the new system's capabilities. Notably, the monthly Income Tax (PPh) payment deadline was extended from the 10th to the 15th of the following month, providing businesses with additional time to utilize the system's enhanced processing capabilities.

Integration with Accounting and ERP Systems

CoreTax provides Application Programming Interface (API) access that enables direct integration with business systems The system requires specific data formats for electronic submission, particularly for financial statements that must be submitted electronically in predetermined formats.

Unlike the previous system that operated on batch processing, CoreTax's real-time capabilities enable continuous synchronization between business systems and tax compliance.

The system allows taxpayers to download transaction histories in CSV and XML formats, facilitating integration with business intelligence tools and internal analysis systems.

Penalties for non-compliance and how to avoid them

The system's real-time monitoring and cross-referencing with external databases significantly increases the probability of detecting compliance violations.

Recognizing the challenges associated with system implementation, the DJP has provided assurances that taxpayers will not face penalties for compliance delays directly attributable to system technical issues during the transition period.

The system's real-time validation capabilities provide opportunities to prevent penalties by identifying potential issues before submission. Businesses can utilize the system's pre-validation features to ensure compliance before finalizing submissions.

To avoid penalties, businesses must maintain comprehensive documentation of their CoreTax interactions, including screenshots of system errors, correspondence with DJP support, and evidence of good-faith compliance efforts during system disruptions.

Benefits of the CoreTax system

• CoreTax represents a paradigm shift toward unprecedented transparency in Indonesia's tax system, creating significant benefits for compliant taxpayers while substantially reducing opportunities for tax evasion.
• The system's most significant transparency feature is its ability to integrate taxpayer data with multiple external sources, including banking records, customs data, population databases, and third-party transaction information.
• CoreTax automatically cross-references VAT invoices with actual transaction data, making fictitious invoice schemes significantly more difficult to execute.
• The system's comprehensive data integration provides tax authorities with sophisticated tools for identifying potential compliance issues before they become major problems.
• The system's digital nature and automated processes significantly reduce opportunities for corruption in tax administration.
• The technical capabilities of CoreTax deliver substantial improvements in data accuracy and processing speed that benefit both taxpayers and tax authorities.
• Login times have been reduced from 4.1 seconds to 0.012 seconds, registration processes from 5.8 seconds to 0.045 seconds, and tax invoice generation from 10 seconds to 1.46 seconds.
• The system's real-time validation capabilities identify errors and inconsistencies immediately during data entry, rather than after processing.
• CoreTax provides automated reconciliation between payments and reporting, eliminating manual matching processes that were prone to errors and delays.
• The system's integration with authoritative databases ensures that basic taxpayer information remains accurate and current. Automatic updates from population databases, business registries, and other official sources reduce the burden on taxpayers to maintain current information while ensuring data accuracy.

CoreTax in the broader context of Indonesia's investment environment

As part of the country’s broader digital transformation agenda, this sophisticated technological infrastructure exemplifies Indonesia’s commitment to aligning its public administration with international standards and expectations. By embracing advanced technology to modernize tax administration, the government is actively fostering a more conducive and transparent business environment.

Through improved collection efficiency and a reduction in tax evasion, the system strengthens the government’s fiscal capacity, which can support national development priorities.

Implications for foreign direct investment and cross-border transactions

The system's automation and integration capabilities substantially reduce the administrative burden associated with tax compliance for foreign investors.

CoreTax’s integration with banking and financial institution data enhances monitoring of relevant transactions, requiring foreign investors to maintain comprehensive documentation. Its real-time processing and data management capabilities support verification of tax compliance and provide more complete tax information to assist internal investment decision-making.

The system's data management capabilities enable more effective administration of investment incentives and special economic zone benefits. Its real-time processing capabilities enable immediate verification of tax compliance status, which is particularly valuable for foreign investors who need to demonstrate compliance to parent companies, auditors, or other stakeholders.

Its comprehensive data integration provides enhanced due diligence capabilities for foreign investors evaluating potential Indonesian partners or acquisition targets. Access to more complete and accurate tax compliance information can improve investment decision-making and reduce transaction risks.