Taxpayers of Micro, Small and Medium Enterprises (MSMEs) who have a gross turnover of no more than IDR 4.8 billion in one Tax Year receive Income Tax (PPh) facilities with a final rate of 0.5%. Tax calculations for MSMEs use the final PPh rate of 0.5%, which is imposed directly on monthly gross turnover so the calculation is simpler.

In order to encourage the development of MSME businesses, the government has set a certain validity period for the use of the 0.5% final PPh rate. This is regulated in Article 59 PP 55 of 2022. The use of the 0.5% final PPh rate for MSMEs ends within the following period:

• Maximum 7 years for individual Taxpayers
• A maximum of 4 years for corporate Taxpayers in the form of cooperatives, limited partnerships (CV), firms, village-owned business entities/joint village-owned business entities, or individual companies founded by one person, and
• Maximum 3 years for limited liability company Taxpayers.

The following conditions apply to the calculation of this time period:

1. For Taxpayers registered before the enactment of PP 23 of 2018, the period for imposition of final PPh is calculated from the 2018 Tax Year.
2. For Taxpayers who are registered after the enactment of PP 23 of 2018, the period for imposition of final PPh is calculated from the Tax Year of the registered Taxpayer.
3. For Taxpayers registered after 20 December 2022, the period for imposition of final income tax is calculated from the Tax Year of the registered Taxpayer;
4. For Taxpayers of village-owned enterprises/joint village-owned enterprises or individual companies established by 1 (one) person registered before 20 December 2022, the period for imposition of final PPh is calculated from the 2022 Tax Year.

Apart from the fact that the validity period has expired, the 0.5% final PPh rate can also end if in a Tax Year, the Taxpayer's gross turnover has exceeded IDR 4.8 billion or the Taxpayer of their own accord chooses to carry out the normal calculation using the rate of Article 17 of the Income Tax Law by taking into account facilities in Article 31E of the Income Tax Law.

Additional Facilities for Individual MSMEs Taxpayers

Apart from being able to use the final rate of 0.5%, individual MSMEs Taxpayers receive additional facilities. In accordance with Article 7 paragraph (2a) of the Income Tax Law, individual MSMEs Taxpayers are not subject to income tax on their share of gross turnover up to IDR 500 million in 1 (one) Tax Year. Thus, individual MSMEs Taxpayers whose annual gross income does not exceed IDR 500 million do not pay the 0.5% final PPh as intended. This provision applies from Tax Year 2022.

Calculation of the 0.5% PPh Rate for MSMEs in 2024

The legal basis for imposing a 0.5% PPh rate for MSMEs is PP 55 of 2022. As of the writing of this article, PP 55 of 2022 is still in effect and there are no new regulations that change the content of this provision. Thus, MSMEs can still use the 0.5% PPh rate in 2024 as long as the term of application of the provisions (7/4/3 years) is still in effect and gross turnover in the 2023 Tax Year does not exceed IDR 4.8 billion.

Example of Calculating the Period for Application of Final Income Tax for MSMEs

Example 1

Mr. L owns a coffee shop business and has been registered as a Taxpayer since December 30 2022. Gross turnover obtained by Mr L from his business:

• Year 2022: IDR 1,000,000,000.00
• Year 2023: IDR 1,200,000,000.00
• Year 2024: IDR 800,000,000.00
• Year 2025: IDR 1,000,000,000.00
• Year 2026: IDR 1,200,000,000.00
• Year 2027: IDR 1,500,000,000.00
• Year 2028: IDR 1,800,000,000.00

Mr. L can be subject to a final PPh of 0.5% within a period of 7 (seven) Tax Years, namely from the time the Taxpayer is registered, namely in the 2022 Tax Year to the 2028 Tax Year. For the 2029 Tax Year and subsequent Tax Years, he will be subject to PPh based on rates Article 17 paragraph (1) letter a of the Income Tax Law.

Example 2

Mrs. X owns a clothing trading business and has been registered as a Taxpayer since October 16 2017. Gross turnover obtained by Mrs. X:

• Year 2017: IDR 75,000,000.00
• Year 2018: IDR 100,000,000.00
• Year 2019: IDR 500,000,000.00
• Year 2020: IDR 800,000,000.00
• Year 2021: IDR 1,000,000,000.00
• Year 2022: IDR 1,200,000,000.00
• Year 2023: IDR 1,500,000,000.00
• Year 2024: IDR 1,800,000,000.00

Mrs. X can be  subject to final Income Tax of 0.5% within a period of 7 (seven) Tax Years, from the Tax Year where PP 23 of 2018 comes into force, namely Tax Year 2018 to Tax Year 2024. For Tax Year 2025 and subsequent Tax Years, PPh is subject to income tax based on the rates of Article 17 paragraph (1) letter a of the Income Tax Law.

Example 3

CV AB has a pottery sales business and was registered as a Taxpayer on March 6 2021. Gross turnover obtained by CV AB:

• Year 2021: IDR 1,000,000,000.00
• Year 2022: IDR 2,000,000,000.00
• Year 2023: IDR 2,500,000,000.00
• Year 2024: IDR 3,000,000,000.00

CV AB is subject to final PPh of 0.5% within a period of 4 (four) Tax Years, namely from Tax Year 2021 to Tax Year 2024. For Tax Year 2025 and subsequent Tax Years it is subject to PPh based on the rate of Article 17 paragraph (1 ) letter b or Article 17 paragraph (1) letter b and Article 31E of the Income Tax Law.

Example 4

CV JK has a business selling foodstuffs and was registered as a Taxpayer on August 4 2016. Gross turnover obtained by CV JK:

• 2018: IDR 1,000,000,000.00
• 2019: IDR 2,000,000,000.00
• 2020: IDR 2,500,000,000.00
• 2021: IDR 3,000,000,000.00

CV JK is subject to a final PPh of 0.5% within a period of 4 (four) Tax Years, from the enactment of PP 23 of 2018, namely the 2018 Tax Year, until the 2021 Tax Year. For the 2022 Tax Year and subsequent Tax Years it is subject to Income Tax rates are based on Article 17 paragraph (2a) or Article 17 paragraph (2a) and Article 31E of the Income Tax Law.

Example 5

PT XYZ operates in the car repair business sector and is registered as a Taxpayer on July 6 2022. Gross turnover obtained by PT XYZ:

• Year 2022: IDR 100,000,000.00
• Year 2023: IDR 200,000,000.00
• Year 2024: IDR 300,000,000.00
• Year 2025: IDR 400,000,000.00

PT XYZ is subject to final PPh of 0.5% within a period of 3 (three) Tax Years, namely from Tax Year 2022 to Tax Year 2024. For Tax Year 2025 and subsequent Tax Years, PT XYZ is subject to PPh based on the rate of Article 17 paragraph (1) letter b or Article 17 paragraph (1) letter b and Article 31E of the Income Tax Law.

Get to know the Final Provisions in the MSMEs Final Income Tax

The income tax imposed on MSMEs Taxpayers is final. This is regulated in Article 4 paragraph (2) letter e of the Income Tax Law as follows:

“The income below can be subject to final tax:

…

e. certain other income, including income from business received or obtained by Taxpayers who have certain gross turnover,

regulated in or based on Government Regulations"

Final PPh has its own treatment in the imposition of tax, including the nature, amount and procedures for payment, deduction or collection as regulated in Government Regulations. Apart from that, several other final PPh criteria are:

1. Income subject to final PPh is not combined with other (non-final) income in calculating PPh in the Annual Tax Return
2. Final Income Tax paid/withheld/collected cannot be credited as a deduction from taxable income
3. Costs incurred to obtain income subject to Final Income Tax cannot be deducted from gross income
4. Final income tax does not have a higher rate if you do not have a Taxpayer identification number (NPWP).

References:
[1] HPP Law
[2] PP 55 of 2022
[3] PP 23 of 2018