Non Profit Organisations in Indonesia and

Financial Accounting Standards

Current condition, its development and the role of IAI (Indonesian
Institute of Accountants)

Dr. Pahala Nainggolan,Ak

Onza Simangunsong,Ak

Working Paper #1-2012

Preface

Non-profit organizations in Indonesia have been established since long time ago. They grow
naturally and consistently showing their contribution to the community. Some of them are really
not for profit, but the rest are not clear. The number of NPOs is growing fast, but governments fail
to provide a solid base and strategic support for their future development. Probably the role of third
sector is not counted as important as that of other sectors.
Indonesia Institute of Accountant (IAI) could contribute to the development of this sector. Initial
works on this has been started in 1997; then, in 2010 revision to their reporting standard for non-profit
organizations was made. Beyond those documents, a comprehensive accounting standard need to
be developed. Not only to provide technical accounting guides but also, which is more important, to
enable NPO practicing transparency and accountability to public.
Transparency and Accountability are the heart of non profit. They are unique characteristic of
NPO. Indonesian Accounting Standard for Non-profit organizations ideally captures those and set
a path for development of non-profit organizations. It may lead to certification of NPOs, capacity
building for human resources and in the end; it will draw public interest to contribute to NPOs social
works.
This paper is a small step; it is the first attempt to provide map of NPOs in Indonesia to IAI. Next
paper will be about transparency and accountability in reality. For sure another series of paper will be
published to allow a better understanding about non-profit in Indonesia on the side of government,
corporations and other stakeholders. It is expected that this sector will receive sucient support
both from government and business sector in such forms as regulations, enforcement and resource
mobilization.
Yayasan Bina Integrasi Edukasi as publisher this paper, where authors actively manage, will
consistently issue research, review and other publications to provide technical guidance by publishing
some books, providing technical assistance by mentoring and coaching NPOs and advocating policy
and regulations. Those will lead into transparency and accountability of Indonesian non-profit
organizations to public.

Jakarta February, 2012

Dr. Pahala Nainggolan, Ak
Onza Simangunsong, Ak

Preface | Yayasan Bina Integrasi Edukasi

Table of Content
Preface..................................................................................................................... 2
Table of Content....................................................................................................... 3
1. Introduction ....................................................................................................... 4
2. Definition of NPO ............................................................................................... 5
3. Types of NPO ...................................................................................................7
A. Foundation...................................................................................................7
B. Association (Perkumpulan) .......................................................................... 9
C. Political Party (Partai Politik) ....................................................................... 9
D. Mass Organization (Organisasi Masyarakat-Ormas). ................................ 10
E. Non Governmental Organization (NGO) .....................................................11
F. Branch of International NGO ......................................................................11
G. Coalition, Network, Union, Group, etc ...................................................... 12
H. Professional Organizations, Industry based Associations etc ..................... 12
I. Other Types of NPO ...................................................................................13
4. Regulations Related to NPO ..............................................................................13
5. Taxation Aspects of NPO .................................................................................. 16
6. PSAK 45 and NPO Analysis Based on the Condition of NPO in Indonesia ........17
7. Rationale of Establishment of NPO and Practices in Other Countries ............... 19
8. Conclusion........................................................................................................ 21
Yayasan Bina Integrasi Edukasi (YBIE) .................................................................... 22

Yayasan Bina Integrasi Edukasi | Table of Content

Introduction

Non-profit Organizations (NPO) is believed to be the representation of civil society in a country.

Theoretically, failure of the government and the business entities in overcoming the problems in
society requires the establishment of NPO. So, its position should be equal to the business sector and
government sector1.
In developed countries such as USA, NPO recorded annual revenue of around 1,4 trillion USD,
contributing around 5.4% of US GDP. With approximately 1.5 million organizations classified as tax
exempted organizations, the total salary paid in NPO sector makes up 9% of the total salary paid2.
NPO in Canada recorded a contribution of 90 Billion Dollar to the GDP which is around 6 times of the
contribution of the automotive industry3. In addition, if the volunteer is counted in, it is presumed
that another 12 Billion Dollar is being contributed to the GDP of the said country. In Australia, even
though it is has yet to be as significant as that in the U.S, the non-profit sector also shows a noticeable
contribution as shown by tax data4 .
NPO engages in various fields or sectors. In Indonesia, the activities of NPO are relatively limited
to the social sector as indicated by the definition of NPO. However, social sector itself has not been
clearly defined and clarified.
Foundations as part of NPO have been working since pre-independence day. They provided
medical and health facilities, run hospitals and private or Islamic schools. Now the two sectors as
noted above are no longer considered as social sector. Private international schools and hospitals are
run as business entity.
After the reform period of 1998, NPO is mushrooming. It is a reflection of peoples freedom
of expression. Belated government Law no.16 concerning Foundation in 2001 and 2004 started to
regulate foundation. Currently, as government eort to manage these types of NPOs, revision of
Law on Mass Organization (Ormas) and the issuance of Bill on Association are underway..
Indonesian Institute of Accountants (IAI) has anticipated this trend by issuing Statement
of Accounting Standard #45(PSAK 45) which has been eective since 2000. In response to the
implementation of IFRS at global level, revision on PSAK 45 was made in 2010. It provided guidance
on reporting of NPOs financial statement.

2
3
4

The developed countries deem the three pillars of society as equally important. England has National Cabinet-level Oce of the
Third Sector, United States under the reign of President Barack Obama establishes White House Oce of Social Innovation and
Civic Participation, The Government of Canada has Minister Responsible for the Volunteer and Non-Profit Sector.
Reference: http://www.nccs.urban.org National Center for Charitable Statistics is a site presenting data concerning non-profit
sector in the USA.
Wellesley Institute - Canadas Non-Profit Maze
In the said countries, Non-profit Organizations deemed as tax exempted organization may receive contribution or donation
from other taxpayers in which the said contribution is considered as tax deductible expenses, and moreover the non-profit
organization is not a tax subject. With excellent taxation data collecting system, the amount of contribution received by Nonprofit Organization from the individual tax payer may be monitored. In addition to financial contribution, the non-profit sector
also received contribution from the volunteers in form of a man hour. The contribution of the volunteer is relatively dicult to be
quantified in a monetary unit.

1. Introduction | Yayasan Bina Integrasi Edukasi

After ten years, the implementation of PSAK 45 shows mixed results. Some types of organizations
felt they are not part of this PSAK due to poor definition on institution or organization categorized as
NPO. Another factor is lack of capacity of human resources in this sector.
Database of NPO is scattered and poorly managed. Ministry of Law and Human Rights manage
data of Foundations, Ministry of Home Aairs (MOHA) keep data of mass organizations, Ministry
of Finance (MoF) manage Annual Tax Report of NPOs, Ministry of Social Aairs (MoSA) and other
technical Ministries keep data of MoUs with international NGOs. The remaining types of NPO are
either not registered5 or they only have Articles of Association in the form of a notarial deed.
This brief paper is aimed at providing background information to the Council of Financial
Accounting Standard (DSAK-IAI) as the holder of the authority on issuance of Accounting Standards.
DSAK-IAI is expected to initiate development of Financial Accounting Standard for Non-profit sector.
Standard will serve as guidelines for practitioners, providing fundamentals for the development of
non-profit sectors and as strategic support to encourage this sector to be accountable to the public.

Definition of NPO

There are various definitions of NPO in Indonesia; however, the said definitions have not been
adequate in defining what NPO is and its characteristics. The various types of NPO have rendered its
definition to be more challenging. It is therefore necessary to formulate the definition of non-profit
which can cover major types of NPO in Indonesia.
Proper definition then will allow development of references for financial management of NPO
which leads to its transparency and accountability. Definition should reflect the characteristics of NPO.
It may cover types of membership, sources of income, management of the organizations expenses,
main programs or activities, beneficiaries of the organizations activities, and most importantly is
transparency and accountability to the public.

Canada recognize incorporated and un-incorporated non-profit organization which has dierent obligations. This classification
is intentional considering the characteristic of both types of organizations. This distinction is perhaps required in Indonesia since
several NPO is not in a form of legal entity and may not require formalization such as the standard and documented structure of
organization.

Yayasan Bina Integrasi Edukasi | 2. Definition of NPO

Table 1 Definition of NPO according to existing regulations

No

Regulation

Definition of NPO

PSAK 45

a. Income of the entity originates from donors who do not expect any
reward or economic benefit from its grant.
b. Produce service and/or goods not for profit, and if profit exists, it should
not be distributed to the founders or owner.
c. No proprietorship as commonly exists in business entity, which means
that the ownership cannot be sold, assigned, or redeemed. Ownership
does not reflect the proportion of distribution of the asset during
liquidation or dissolution process.

Law concerning
Foundation

Foundation is a legal entity with separates assets and established to achieve

certain objectives in social, religious and humanity sectors. Foundations have
no membership.

Statsblad (Dutch
Law) concerning
Association

Association is legal entity consisting of group of peoples, established to

achieve common goals and objectives as set by its members. It shall not
distribute any profit to the members or apparatus of the association.

Mass Organization

An organization established by the citizens of Republic of Indonesia

voluntarily on the basis of common activity, profession, function, and religion
or beliefs on the One Supreme God to participate in the development, to
secure national goals under the unity of Republic of Indonesia in accordance
with Panca Sila.
Revenue of mass organization originates from (Article 11) :(a) non-binding
donations (b) contribution of the members (c) other legal businesses.

PSAK 45 in the scope of NPOS as defined, has not yet covered NPO whose revenue is generated
from grants of government, donor agencies and individuals (donation) and income from commercial
businesses (as separate unit of NPO). While definition and source of income of Foundations are
not applicable to other types of NPO such as association or professional organizations. Those
which generated income from its members. Foundation limits its activities on social, religious and
humanity sectors, thus making it dicult to deal with economic empowerment of community for
small business.
Regulation concerning Mass Organization enacted in 1985 has been left far behind and failed to
accommodate the growth of NPO post reformation era. In addition, the definition used is too wide;
thus, fail to describe detailed operational aspect of NPO.

2. Definition of NPO| Yayasan Bina Integrasi Edukasi

Types of NPO

With regards to various types of NPO, categorizing NPO in a systematic and structural way is
dicult. Classification below is an initial eort and does not constitute a systematic and comprehensive
categorization. It is taken from practical view and started from legal status of NPO.

A. Foundation
Foundation as a legal entity has been recognized for a long time. The unavailability of regulation
until 2001 resulted in uncontrolled foundations by government. Data about number, status and
sectors where foundations work at did not exist. Now with a grace period of 5 years for adjustment
since 2001, foundations which do not comply with the law shall be deemed dissolved.
Currently, enforcement of several articles in the Law has not yet been seen e.g. obligation to
publish financial statements which is a rare case, return of liquidated assets to the government.

Figure 1 Types of foundations in Indonesia

Foundations can be categorized based on the history of its establishment. First, the foundations
which have been established before the Law passed. These foundations have large amount of assets
such as properties and other fixed assets. They manage hospitals, schools and universities. They
pioneered contribution to the society on that period.
Due to the amount of its assets and its social activities, these foundations financially are selfresilience. Income generated from its social activities is able to finance its expenses. They even are
eligible for a commercial loan from banks.
In several cases, some foundations try to maintain its social value by adopting cross-subsidy
rates, opening branches in the rural areas and providing scholarship and the like.

Yayasan Bina Integrasi Edukasi | 3. Types of NPO

Second, foundations established by corporations to reflect its spirit of philanthropy. They focus
on conducting social activities by channeling donations from companies and its employees. Several
companies manage this type of foundations for implementation of Corporate Social Responsibility
(CSR).
Another objective is to improve the welfare of their employees. Several Ministries, Military and
Police established foundations since long time ago to serve for this purpose. In line with reform on
public finance, the status of those foundations becomes unclear whether they are owned by the
public, government or the private sector.
Similar cases applied to foundations established by State Owned Enterprise (SOE), Central Bank,
BULOG, and government banks. Foundations are means of supporting the welfare of the employee
incl. retired employees. Those may come in Yayasan Dana Pensiun which is relatively similar to the
Pension Fund6 entities. This type of foundation exclusively operates on the corporation/ministry level.
They have access . facilities and income from its parent entities.
Foundations invest in mutual funds, for example, or become share holder in business entities.
Recurrent cost is funded by founders, while social activities are funded by return of its investment
plus founders contribution.
Third, the foundation established by individual/group with the same commonness in ethnicity,
race, etc. They are closed organizations. Individuals or family establish foundations with certain
goals. This type of foundation makes mapping of NPOs activities dicult. They are engaged in art
and preservation of cultural heritage, musical art and other forms. The beneficiary might be public or
certain communities.
Income is originated from the founders or members of family. The expenses are dedicated for
specific activities as predetermined for the welfare of the target beneficiaries.
The fourth type of foundation is locally established foundation acting as grant making foundation
or as the implementing organizations. The first category of this type may be in the form of local NPO
or branch of international NGO. Its primary activity is to provide grants to local NGOs or communities
of target groups based on proposal submitted. These proposals set out the detail of activities, fund
needed and expected outputs7.
As income is generated from foreign donors or headquarter oce, sustainability of these
foundations depends on them. Income will indirectly be aected by financial market, as foreign
donors invest in that market. Any bearish or bullish will aect their fund availability8.

7
8

Pension Fund is actually not a social foundation even though it uses the term foundation. Regulation on this entity is similar to
regulation of financial institutions enacted by Ministry of Finance. Its main activity is investing managed fund for maximum returns.
At the same time, when employees of funding institution have entered the retirement age, pension retribution plus the proceed
from its investment will be paid as pension money on lump sum or monthly basis.
One of the examples of the local donor organization is Tifa foundation (http://www.tifafoundation.org) and Kehati foundation
(http://www.kehati.or.id) and the Kemitraan (http://www.kemitraan.or.id)
Even though the amount is insignificant, local foundation as grant making foundation is relatively known by many NPOs. In
the last several years, these foundations combined grant with own initiatives to make achievement of the program becomes
more eective. Tifa and Kehati foundations are local foundations whereas Kemitraan (formerly Partnership Governance Reform
Indonesia) is a grant making foundation in dierent legal entity.

3. Types of NPO | Yayasan Bina Integrasi Edukasi

Another source of income is endowment fund provided by donors. It is a stable income but usually
combined and added with grants from other donors. Major expenditures are operational cost and
grants provided to NGOs.
Eciency of grant making foundations is reflected by ratio of administrative cost versus grants
provided to grantees. Meanwhile, absorption of managed fund each year indicates eectiveness of
the organization. Expenses are acknowledged when expense reports with supporting documents are
approved by donors. Receiving grant is recorded as liabilities.
NPO as executor of the program has various incomes. It may come from grants, profit from its
commercial business, individual donations, grants from the government and companies. NPO will
work on the field together with targeted beneficiaries. Thus major expenditures incurred are program
cost and overhead.
NPO implement their program in advocacy and development. The first one focuses on policy,
research, gathering opinions, recommending changes in policy and so on. Outputs of their works are
intangible and indirectly benefit people. In general, this type of organization incurred fewer expenses
as they require less physical work are needed. The number of sta engaged and its fixed assets are
small. . Development NPO implements program on the ground and produces goods or service which
are directly enjoyed by beneficiaries. Major expenses are for field works and overhead.

B. Association (Perkumpulan)
Association is a legal entity which requires membership.Member can be entity or individuals..
Membership fee is a source of income, however, in reality the association is largely supported by
grants from donor organizations and its business units. The number of association is less than that
of foundations. The clause which obligates association to have members weakens public interest in
establishing associations.9

C. Political Party (Partai Politik)

Political party manages its finance based on the Law on Political Party which is regularly updated10.
The sources of income of political party are:
Membership fee11
Donation of individual members

Perkumpulan Prakarsa may be accessed at http://www.theprakarsa.org; PSKD, Perkumpulan Sekolah Kristen Djakarta was ocially
established on May 20, 1942, by the time Indonesian was allowed to establish private school by the government of Japanese Army.
(The late) Ds I. Siagian et al agrees to establish Perkumpulan Sekolah Kristen Djakarta, abbreviated as PSKD. This agreement
is supported by the teachers throughout Indonesia from the Netherlands Christian School with a mission unchanged since the
establishment, Providing quality and aordable education
10 As last amended with Law no. 2 of 2011, formerly Law no 2 of 2008 concerning Political Party
11 In reality, the Political Party does not require retribution from the members. One of the reasons is that it will burden the members
- Anomali Keuangan Partai Politik Pengaturan dan Praktek Kemitraan (PGRI), Nov 2011 page 83.

Yayasan Bina Integrasi Edukasi | 3. Types of NPO

Donation of individual non-member 12

Donation of Business Entities
State Contribution13

Political party is prohibited from opening business entity or holding shares of a company14.
Political party must maintain a dedicated bank account which serves as ocial account for its income
and expenditures.
Expenditures depend on the work programs as decided and implemented at the smallest unit
of the organization. Expenses paid from source of State Subsidy are subject to be regulated by
Government Regulation. They are allowed for political education and operational cost of secretariat
oce. Reporting and accountability mechanism have been defined, including audit by General Audit
Oce. Financial statement of political party as stipulated in Law no.2/2011 shall include all income
and expenses such as:
Budget Realization
Balance Sheet
Cash flow Statement
However the law does not mention anything about submission and publication of the reports
to public. Financial statements must be audited by Public Accountant, yet there is no obligation to
release audited report to public.

D. Mass Organization (Organisasi Masyarakat-Ormas).

Mass Organizations is governed by Law no. 8/1985. It is being revised as the context changes.
Mass Organizations data is managed by the Ministry of Home Aairs (MoHA) and local governments.
After the reform, in line with the spirit of freedom, controls over the organizations are carried out by
dierent agencies. In reality these ormas are uncontrolable as indicated by their failure to register
and to submit bi-annual reports which rarely observed 15.
MOHA categorize Mass Organizations based on its commonness of activities (NGOs and
foundations), profession (professional and industry association), function (youth, fishers, sport
etc) and religious beliefs. Membership is open to all Indonesian citizens. Revenues are generated
from membership fees, donation and other legitimate businesses. However financial accountability
mechanism such as reports, audits and submission or publication to public is non existent.

12 The maximum amount shall be specified by the Law

13 Subsidy calculated based on the votes. Accountability report, audit and publication to public for subsidy lastly regulated by
Government Regulation no. 5/2009
14 In reality Political Party sets out other source of income namely other legitimate business this income is not from commercial
businesses.

3. Types of NPO | Yayasan Bina Integrasi Edukasi

Some of mass organizations have a very large organization network , assets and branches /
representatives. They range from central level to the village level; hence, making them similar to
a mini-state. Muhammadiyah and Nahdlatul Ulama (NU), with their subsidiaries and aliated
organizations are good examples. Infrastructures of the organizations have been long established
with defined work programs implemented down to village level. It is not a centralized system in the
sense that each branch has the freedom to mobilize resources, including revenue generation.
NPO which is not classified as Indonesian legal entity among others:

E. Non Governmental Organization (NGO)

NGO may take either legal entity or not. Various forms of NGO, as covered in the mass media,
such as networks, coalitions, commissions, union, work unit, federation, association and other names,
may consist of institutions or group of various NGOs where they are independent each other.
Revenue comes from grant of local and foreign donor, local governments, ministries and
corporations. Dependency to the donors has long been an issue . Financial Self-Resilience has been
a wide-spread issue but up to today it has never been resolved really. Activities and programs then
highly hinge on the availability of fund from donors. In the event that no source of fund is secured,
the NGO will easily be hibernated or dissolved, and later re-activated.
Development type of NGOs which work with communities such as the farmer group, can play a
certain role such as market broker, provider of capital for the farmer by charging interest, and so on.
It will then generate income. This is not the case for advocacy type of NGOs. As their programs are
about policies, regulations, ideas/recommendations, and research, no opportunity exist for income
generation from its beneficiaries.
On the smaller scale, NGOs may consist of group of individuals who jointly work for certain issues.
The farmers and fishers group could be established when required by the mechanism of provision of
grants from the governments or other donor agencies. These groups are commonly local, limited to
certain areas or villages and less organized.

F. Branch of International NGO15

Several international NPOs are operating in Indonesia by opening branches; as they are not
qualified as Indonesian legal entity. Their income is sourced from budget allocated by its head quarter
for activities programmed each year. Head oce fundraising activities use materials from field or
country programs.

15 To give better understanding on the activity and structure of organizations of NGO, several sites of NGOs may be visited such as:
http://www.tnc.org, http://www.conservation.org, http://www.plan-international.org

Yayasan Bina Integrasi Edukasi | 3. Types of NPO

10

To start working in Indonesia, an International NGO must enter into a Memorandum of

Understanding with the relevant technical ministries pertaining to its program. With this MoU, foreign
workers could come to work in Indonesia.
Some international NGOs established local foundation to support its work in Indonesia. These
local foundations involve some prominent figures as members of their steering committee / founder.
Revenues derived from parent NGO are then used to finance activities or programs that have been
determined. In addition, this local foundation is allowed to raise fund in the country, despite the fact
that the portion of this income is relatively minor.

G. Coalition, Network, Union, Group, etc

Among the NGOs, the terms coalition, network, union, groups are well known. The said forms
may be permanent in the sense that it will be eective for indefinite period of time. Serikat Perempuan
(SP) is a coalition of several NGOs focusing on the issues of women throughout Indonesia. However
each and all members of SP constitute an independent organization, which means that it may raise
its own fund and plan their own program based on the need and decision in the regional level. The
role of national SP through its national-secretariat is more to facilitate resource mobilization to its
member.
Network may also be eective for promoting an issue or activity e.g. when donor wish to provide
grants for monitoring of general election, grantee at national level will involve local NGOs to become
member of network for this particular activity.
In smaller scale, network or coalition may be established for only one activity such as criticizing
draft of law to be passed to parliament and build public opinion. No specific resource of income is
identified. It is more to share the vision on the issues at society. Thus, network may be based on the
institutions and the activities.

H. Professional Organizations, Industry based Associations etc

Professional organization or business/industrial association of similar nature is a closed NPO
where membership granted to those from certain professions/industries. Several professional
organizations adopt active principle, where members shall apply for membership. While passive
principle treats eligible individuals or business entities as member automatically.
Income is generated from contribution and membership fee. In addition, they conduct several
activities for its members with fee. Other income is generated from other businesses which are still
related to the work program of the organization.
Professional organizations require certain number of professional credits to maintain professional
membership and technical competence of the members. For such purpose, activities such as trainings
or workshops are held for the members with charged fees. This type of activity maybe open to public
as well. Donation from donor is another source of income.

11

3. Types of NPO | Yayasan Bina Integrasi Edukasi

The expenditure incurred for its operation. In addition, the professional organization is required
to do a series of researches, certifications and so on for the interest of the members.

I. Other Types of NPO

Other non-legal NPO entities may come in religious organizations established in the houses of
worships. Even though it is established for its own followers, this NPO receives income from the
public namely the congregation of the house of worships. The scale of this organization greatly
varies, depending on the size of the house of worship.
Several NPOs also use the idioms of customs, ethnics, or geographic location as its base. They
are similar to associations in terms of income and expenses. Other NPOs such as association of sport
hobby, interest, science etc are NPOs with other characteristics.

Regulations Related to NPO

The establishment and management of NPO in Indonesia are regulated under several laws and
their derivatives.Based on the definition set, however, the naming and definition of NPO in the
people overlaps. An NPO may fit into more than one categorization. For example, a foundation may
be grouped as either a mass organization or anNGO.
There are also NPOs which do not belong to any existing categories, such as: network, coalition,
group of communities, religions and so on.
Table 2 Summary of Regulations concerning NPO
No

Regulation

Remark

Law number 16 of 2001 concerning

Foundation; as amended with Law
number 28 of 2004 and Government
Regulation number 63 of 2009
concerning Foreign Foundation

A regulation for establishment and operation of the

foundations is adequate. Several more detailed regulations
are still required to guide at technical implementation.
With regard to financial aspects, this regulation has
sucient mechanism of financial statement which is clearly
regulated including the type of income which must be
published.
The primary problem is enforcement of regulations such as
sanction for foundations which fail to publish its financial
statements.

Yayasan Bina Integrasi Edukasi | 4. Regulations Related to NPO

12

13

Staatsblad 1670-84 Draft Law on

Association is being submitted;
hence Association will be regulated
by a regulation having equal power
to the Law.

Approval from the Dutch government for establishment

of an organization called as association. It only deals with
legal aspect of the organization while financial aspect incl.
accountability and reporting are not mentioned.

Law number 8 of 1985 concerning

Mass Organization

Mass Organization is an institution where people may

express their aspiration through or take part. Law focuses
on institution and its legal aspect to enable government
to control and to reserve right to dissolve/establish the
organization. Financial aspect such as prohibition on
fund raising activities and report mechanism is regulated.
Accountability to public is slightly discussed.

Law number 2 / 1999, amended

by Law 31/2002; Law 2/2009; Law
2/2011 concerning Political party.
State subsidy is regulated by
Government Regulation number 5
of 2009 and Regulation of Minister
of Home Aairs number 24 / 2009

This law regulates political party as an organization.

Financial aspect is mentioned without spirit of
accountability and deemed to be the worst comparing to
previous laws. In this law:
a. No supervision from other organizaons on Polical
Party financial aspects. No obligaon to submit its
financial statements to any instuons including the
government. Previously it was required to submit those
reports to Supreme Court, General Elecon Commission
and to be further published.
b. Technical instrucon such as format or minimum
informaon to be disclosed does not exist, making
external audit hard to do as there is no financial
standard applied for their financial reports.
c. Absence of the sancon mechanism to be imposed on
any incompliance with the exisng regulaons including
for income from government subsidy.

4. Regulations Related to NPO | Yayasan Bina Integrasi Edukasi

Law number 40 of 2007 concerning

Limited Liability Company;
particularly article 74 concerning
Corporate Social Responsibility
(CSR)
Law number 25 of 2007 concerning
Investment; Article 15 (b)
Law number 19 of 2003 concerning
State Owned Company, Article 88
(1) which declares that the profit of
State Owned Company shall be set
aside for the development of the
people and small scale businesses.

Article 74 requires provision for CSR for any companies

dealing with natural resources. This article is also applicable
to the investors the Law on Investment.
SOE is also required to reserve 2% of its profit for the
development of the people at its surrounding area through
Community Empowerment Program. NPO will be involved
in the management of CSR fund even though the detail
mechanism and the amount have yet to be specified in the
technical and operational guidelines.

Law number 36 of 2008 concerning

Income Tax Article 6 (1) letter i to m
Article 4 : 3 (1) and (2)

Business tax deductible expenses are donation given by

the taxpayers for mitigation of national disaster, research
and development, social, infrastructures development of
educational facilities and development of sports.
Technical guidelines are not available yet. This regulation
will impact NPO as recipient of donation:
Grant or donation from other party is source of income with
sustainability of funding maintained.
Grant in the form of property received by: Religious,
educational, social organization, small scale business,
including Cooperatives determined by Ministry of Finance
to the extent that there is no business, ownership, or
proprietary relationship between the stakeholders
Both articles treat those incomes as non-taxable income.

Law number 14 of 2008 concerning

Public Information Transparency

Article 15 (d) political party shall provide information such

as the management and the use of fund originating from
the state budget and/or regional budget;
Article 16 (d) firmly states
that non-governmental organizations shall provide
information on the management and use of fund from
the state budget and/or regional budget, donation of the
people, and/or foreign donor;

Yayasan Bina Integrasi Edukasi | 4. Regulations Related to NPO

14

Taxation Aspects of NPO

NPO is a tax subject (tax entity) in Indonesia regardless its name and form16. Hence, NPO will have
series of obligations to be fulfilled e.g. apply for Tax Identification Number, submission of monthly
and annual tax returns.
Non-taxable incomes are donation, grant, endowment, benefaction; to the extent that there is
no business, ownership, control and proprietary relationship between stakeholders. Thus, any NPOs
whose income consist of only donation and grants shall be exempted from income tax.
With regard to NPOs running educational and health service, their income is generated from
tuition fee and patients. These are taxable income. Surplus will be taxed when its taxable income is
more than its expenditures. Those at education sector can defer its surplus for maximum 4 years as
long as it is invested in education facilities.17.
To compare, Canada recognizes two types of non-profit organization namely Charity and NonProfit Organizations. Organizations deemed as Charity will have tax exemption status or not treated
as tax entity in the context of Indonesia tax law. To be eligible, they must be established for charity
purpose and operated by allocating the resources for charities only. It must be confirmed that there
is no portion of the income is allocated for the personal benefit or the benefit of the members. The
sectors or scope of activity allowed for the charity organization among others are:
Poverty alleviation
Development of religions
Development of education
Other objectives which benefit the community as decided by the court.

Non-profit organizations may also be tax exempted; however it is a tax entity of property and
capital gain tax. In Indonesia tax law, they are tax entity.
In brief, NPOs whose entire income is sourced from grants or donations do not have to pay income
tax in Indonesia. These tax articles have actually been in line with the spirit of exempting non-profit
organizations from income tax. It also ensures equality for all taxpayers to the extent that those who
have taxable income and surplus must pay income tax.
Traditional Concept is adopted by tax oce in imposing tax on NPO. They assume NPO generate
its income only from donations and grants and will conduct its social works only when the fund is

16 Article 2 paragraph 1 letter b in elucidation of the law defines organization as integration of individuals or capitals whether engaged
in a business or not. The said organization shall be tax entity; several types of organizations are mentioned such as foundation,
association and mass organization. To ensure, there is no other type or names of organizations which is not captured under this
law, it is elucidated all types and name of organization. Under this definition, NPO may be categorized as tax entity.
17 Elucidation of article 5 paragraph 3 letter m stated the reason of the provision of this incentive is to support development of SDM
in Indonesia through education and research/development.

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5. Taxation Ascpects of NPO | Yayasan Bina Integrasi Edukasi

available. This concept needs to be revisited. NPOs financial sustainability has been a long time
discourse. It means an NPO which relies heavily on donation and grants will not sustain.
Some sources of income of NPO to support its financial self-resilience by:
- Providing services or programs for other parties. For example, if an organization has the
competence of organizing community, it may be engaged by a company to communicate its
programs to community. Foundation is contracted to perform the work based on its existing
competences and experiences.
- Providing advisory service by NGOs experts. Several NGOs are led by prominent and
respected individuals with adequate capacity or competence. When other parties such as
government or companies require advices or expert inputs, NGO then will provide those
services. For that, NGO will charge payments on the time spent by said experts.
- Receiving gain from its business units. Profit from these units will be used to fund its social
programs. For example, foundation as shareholder in a company will receive dividend, which
then will be used as additional resource for NGOs social activities.
NPO with various source of income will have both taxable and non taxable income. Thus
expenditures should be properly allocated and matched to those incomes. So far, there is no directive
regulation from tax oce on proper charges of joint cost. Several NPOs use proportional approach
when proportion of income will be a basis for charging. Thus if taxable and non taxable income is 9:1,
then 10% of cost incurred shall be credited to non taxable income. The 90% of its expenditures will
be matched with taxable income. any arising surplus will be taxed.
Another tax complication is fairness of the expenses. When NPO gets non taxable income,
expenditures become irrelevant for tax purposes. It breaks deductible-taxable principle when NPO
provides perks to its sta. It is usually treated as additional income for sta to be taxed at personal tax
return. If it is not adding sta income, it should not be charged into expenditure of the organization.
NPO should charge its non taxable income as much as possible expenditures as it will not change its
tax liabilities. Other taxation obligations such as tax withholding on individuals or income of the NPO
could be fulfilled without technical problems.

PSAK 45 and NPO Analysis Based on

the Condition of NPO in Indonesia

PSAK 45 and its revised version have plenty of opportunities for technical improvement. It has
provided technical guidelines on financial reporting of non-profit sector in Indonesia. Reporting itself
is an end of business process started by financial transactions. With regards to uniqueness of nonprofit sector compared to the business and government sectors, PSAK 45 should be able to capture

Yayasan Bina Integrasi Edukasi | 6. PSAK 45 and NPO

Analysis Based on the Condition of NPO in Indonesia

16

the root of the transactions including financial practices in Indonesia. Characteristic of nonprofit
sector should be reflected in all business process not only at reporting aspect.
In addition, PSAK 45 has not yet comprehensively captured various types of non-profit entities
in Indonesia with its unique managerial characteristic, beneficiaries of the service provided by NPO,
operational characteristics and mission of the organizations themselves. Further consequence of this
failure is transactions in the non-profit sector defined in narrow and limited way. Thus, practical cases
of transactions have not either been regulated or used business sector PSAK as reference. Those
cases, among others, are18:
i. The definition concerning NPO as described in scope of PSAK 45 is not adequate compared
to various types of identified NPO in Indonesia with its characteristics as discussed above.
It is obvious that several types of NPO, the characteristics of organizations, the purpose of
establishment and the characteristics of income and expenses have not been fully covered.
ii. This limited definition of NPO is then followed by failure in identifying its source of income.
Various types of income generated by NPO has not yet been fully identified by PSAK 45 then
there are some have not yet regulated then must refer to those of business sector.
iii. Users of financial statements and their interest are assumed as identical with those of
business sector or government. As a consequence, important characteristics of the financial
information namely public transparency and accountability is not defined throughout the
financial statements and its components. 19.
iv. Several qualitative characteristics of the information in the financial statements do not
fully adopt the characteristics non-profit sector i.e. Comparability and cost-benefit. This
qualitative characteristic need to be revisited in non-profit sector with regard to its dierent
characteristic with business sector. Accountability as a unique and important qualitative
characteristic should be reflected in PSAK 45.
v. Some common transactions in NPO still need to refer to that of business sectors as those are
not covered by PSAK 45. They are:
a. In reality, recognition of income from grant is not based on the progress of the work;
instead it is based on fund received or settlement of expenditures approved by donors.
As such a case is not mentioned in PSAK 45, PSAK 19 should be referred to.
b. Grant allocated for fixed assets will be recorded as expenses until the grant agreement
completed. Fixed assets shall be kept in the possession of NPO and still be used even
after the grant period. Again, it uses PSAK 16 concerning fixed asset as reference which
require fixed assets to be recorded when procured.

18 This summary is the Response of Yayasan Bina Integrasi Edukasi (YBIE) to Exposure Draft PSAK 45 submitted to DSAK-IAI. The
detail of documents can be downloaded from http://www.integrasi-edukasi.org
19 The user of financial statement of nonprofit entity is grant making foundation providing grant for an NPO, for the interest of:
Ensuring that the resources received is used according to the objective stated,
Ensuring that the expenses is made in the limit (budget) specified and that there is no fraud,
Acknowledging the progress of the activity to be funded,
The management of the receiving entity and according to the prevailing legislations.

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6. PSAK 45 and NPO Analysis Based on the Condition of NPO in Indonesia

| Yayasan Bina Integrasi Edukasi

c. Consolidation of financial statements of business entities owned by NPO into its financial
statements has not yet been regulated by PSAK 45. At the same time in this circumstance
consolidation process of business sector cannot be applied.

Rationale of Establishment of NPO and

Practices in Other Countries

Several theoretical approaches could be used in describing comprehensive definition and

characteristics of non-profit sector in Indonesia. Economic theory describes that the presence of
non-profit sector is required due to:
Failure of the market where several services cannot be provided to the people as those are
not profitable.
Failure of the government, where government fails to provide services due to the limited
budget, high cost or low demand of those services. In addition, people try to avoid
governments involvement in regulating all aspects of peoples life.
Historical approach believes that community has been far established before the presence of a
legitimate government. People are used to work together to solve certain problems in the community.
When the government gets involved, its bureaucracy will encourage people to act voluntarily and
be separated from government works. History also suggests that religious beliefs also served as a
ground of charitable purposes and togetherness.
Political theory states that non-profit organization is a means for public to participate in
governments works. People are allowed to associate and work together to achieve common goals
for the benefits of the to people. Non-profit organization is a channel for pluralism and solidarity.
When democratic government system is believed as the best system in promoting welfare,
then the system demands a balance between the three main pillars, namely business sector (private
sector, enterprise), government sector and civil society or the people. Each pillar represented by an
entity which has a clear distinction.
Business sector as represented by various types of companies responsible to and attempt to
gain interest of its shareholders.
Government sector as the holder of the authority is represented by its government institutions.
They are responsible to the leader who is elected by the people.
Public sector, which is relatively left behind, is represented by many entities. They are
responsible for their own people through various mechanisms. The condition of this sector is
characterized by various types and forms of organization; thus, defining or regulating those
organizations properly is dicult.

Yayasan Bina Integrasi Edukasi | 7. Rationale of Establishment of NPO

and Practices in Other Countries

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Lester Salamon in his book titled Americas Nonprofit Sector concluded four strategic functions
assumed by non-profit sector:
Service Provision: Provider of Special Services for the Community particularly the needs
which cannot be provided by the Government. The characteristics of democratic government
which requires the process of majority approval to act, has enable NPOs to react faster to
certain issues. NPOs are able to fulfill the needs of certain groups of people immediately.
Value Guardian: NPO is a means for citizens who will change and improve its communities. In
a lowest community group, such as Rukun Tetangga (RT) in Indonesia, people have initiative
to perform night watch, social gathering, and help flood victims and send supports or
volunteers to other areas when needed.
Advocacy and Problem Identification: NPO is a means to draw public attention to a certain
problems, particularly the problem of marginalized and neglected people, which must be
mutually solved.
Social Capital: In developed democratic country, activity held by NPO bridges the gap between
capitalism and democracy. Non-profit organization encourages the spirit of togetherness
among the people by providing means to achieve collective welfare.
In United States NPOs can be categorized as:
Charities such as American Red Cross, Salvation Army, YMCA
Foundations such as W.K. Kellogg Foundation, Ford Foundation, community foundations
Social Welfare or Advocacy Organizations such as National Association for the Advancement
of Colored People (NAACP), American Civil Liberties Union (ACLU), National Rifle Association
(NRA)
Professional/Trade Associations such as Chamber of Commerce, American Medical
Association (AMA)
Religious Organizations such as churches
In England there are several categories of NPO, two of the most significant are:
Community Groups and Voluntary Organizations.
Included in this category is mass organizations, small community groups in the neighborhood
and group of volunteers. These groups work to improve the condition of their surrounding area
or campaigning for change in social conditions. Not all of these organizations are there for
charitable purposes.

Social Enterprises (SE)

SE is defined as business with primarily social objectives whose surpluses are principally
reinvested for that purpose in the business or in the community, rather than being driven by the
need to maximize profit for shareholders and owners.

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7. Rationale of Establishment of NPO and Practices in Other Countries

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Other types of NPO are Unincorporated Association, Charitable Trust, Charitable Incorporated
Organization (from late 2011) and Charitable Company.

Conclusion

The issuance of PSAK 45 in 1997 as reference for financial reporting of non-profit organization
in Indonesia is a significant milestone. The revised version in 2010 indicates IAI, as an authoritative
agency, attempts to provide better guidelines for the operation of NPOs. Apart from technical issues
identified at operational level, PSAK 45 is deemed to be meeting the needs.
With regards to the global trend of growing non-profit sector, where regulations and platforms
are needed for future development of this sector, IAI should be more visionary. Guidance provided
by PSAK 45 is adequate in terms of technical and operational aspects, yet more needs to be done to
encourage the development of this sector. Transparency and accountability,unique characteristics
of this sector, need to be incorporated into future financial standard of non-profit organization in
Indonesia.
Emerging sources of funding for NPO from the business sector (CSR and Community Development
fund), government sector such as provision of tax incentives (deductible expenses for donations) and
direct contribution from community must be facilitated. Public participation in development through
establishment of NPO must be supported by providing fundamental guidance and conceptual frame
work. With those in mind, IAI issued regulations which ideally cancapture the nature of operational
aspects of NPOs and characteristics of its social activities. NPO such as Political Parties need to be
included in the definition of NPO. Given its influence onsociety, political parties should be more
transparent and accountable to the public in implementing their financial accounting standard for
non-profit.
Development of financial accounting standard for the non-profit sector in Indonesia is expected
to surpass the scope of PSAK 45, which regulates reporting aspect of the NPOs. Ideal standard should
be built based on types and characteristics of existing NPOs and its future development. Mapping of
the operational and financial characteristics of NPO need to be conducted as a basis for development
of comprehensive understanding on how NPO is doing in Indonesia. Furthermore, formulation of
definitions is crucial. Based on comprehensive knowledge of NPOs, financial accounting standards
developed for non-profit sector should incorporate some elements of the future of NPOs in
Indonesia.
Adoption of similar standards enacted in other countries should be done for an ecient eort of
development. It should involve more players in non-profit sector such as international or local donor
agencies, management of various types of NPOs in the society, business sector as the provider of
fund, and government as authority issuing taxation regulation and relevant laws.

Yayasan Bina Integrasi Edukasi | Conclusion

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Yayasan Bina Integrasi Edukasi (YBIE)

YBIE was established in 2007 and put our focus on capacity development of non-profit
organizations in Indonesia. We believe strengthening NPO in managing its resources such as financial
and human resourceswill enable NPO to implement transparency and accountability to public. We
also believe that coaching and mentoring are the most eective method to increase NPOs capacity
in governance and programmatic aspect. We have provided technical assistance to more than 150
(one hundred and fifty) NPOs in the last 4 (four) years including those coming from 6 (six) network
of NGOs. We assist them to generate financial statements as PSAK 45, develop Standard Operating
Procedures-SOP for financial and human resources of their organization, and lastly, providing basic
knowledge on Indonesian Taxation which is related to non-profit. YBIE manage web-based technical
support for financial and accounting; publish some books and modules, working papers on non-profit
thematic issues; conduct public workshops of finance, accounting and taxation; and advocate for
development of Accounting Standard for Non-profit organization in Indonesia.
Contact us: sekertariat@integrasi-edukasi.org.
Visit our web site at: http://www.integrasi-edukasi.org
Jl. Tebet Timur Dalam 8 M no.8
Jakarta Selatan
Telp/Fax. 021 8319282

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Yayasan Bina Integrasi Edukasi (YBIE) | Yayasan Bina Integrasi Edukasi