Expand the Tax Base, Government to Lower MSME Threshold to IDR 3.6 Billion Per Year

JAKARTA. The government plans to lower the income threshold for MSME (Micro, Small, and Medium Enterprises) business actors subject to income tax from IDR 4.8 billion to just IDR 3.6 billion per year.

Quoting Bisnis.com, there are two reasons for this reduction. First, to increase the number of MSME businesses that become tax subjects, thereby broadening the tax base.

Second, this adjustment aligns Indonesia's MSME income tax policy with global trends, which are relatively lower than Indonesia's current rates.

For context, according to OECD data, Indonesia's MSME income tax threshold is equivalent to USD 300,000 per year. Meanwhile, in other countries in the region, such as Thailand and the Philippines, the value is significantly lower, at USD 50,000 per year.

Therefore, the OECD, through its report titled OECD Economic Surveys: Indonesia November 2024, has also recommended that the Indonesian government lower the income tax threshold for MSMEs.

Final Income Tax Rate for MSMEs

MSME business actors in Indonesia have been granted tax facilities, including a tax exemption for income up to IDR 500 million annually.

Additionally, gross income exceeding IDR 500 million is subject to a final income tax rate of 0.5%. The government has also extended the validity period of this facility from seven years to eight years for individual MSME business actors. 

This time frame applies from the enactment of the final income tax on MSME regulation in 2018.

Plans to extend the 0.5% final MSME income tax period and lower the income threshold will be outlined in new regulations to be issued by the government soon. (ASP/KEN)