Should the 0.5% MSME Tax Incentive be Extended?

epajak.or.id Should the 0.5% MSME Tax Incentive be Extended?

Micro, Small, and Medium Enterprises (MSMEs) have long been the driving force of the Indonesian economy. Finance Minister Sri Mulyani said that MSMEs absorb 97% of the workforce and contribute significantly to the national GDP. Support for the MSME sector is important, one of which is the implementation of the Final Income Tax (PPh) rate scheme of 0.5% which makes it easier for MSME players to fulfil their tax obligations. However, this policy is scheduled to expire at the end of 2024, leading to various debates and proposals to extend it.

The Importance of Final Income Tax Incentives for MSMEs

The Final Income Tax scheme with a rate of 0.5% was first introduced in 2018 through Government Regulation (PP) No. 23/2018. This policy is designed to ease the tax administration burden for MSMEs with a turnover of up to IDR4.8 billion per year. With this scheme, businesses can simplify tax calculations, as tax is calculated directly based on turnover or gross turnover, not net profit, so there is no need to do complicated bookkeeping.

However, this scheme has a time limit for implementation. Based on Article 59 of PP No. 55/2022 as a regulation updating PP 23/2018, the period of use of the 0.5% rate is:

7 years for Individual Taxpayer (WP)
4 years for Corporate Taxpayers in the form of cooperative, firm, or Commanditaire Vennootschap (CV)
3 years for Corporate Taxpayers in the form of PT (Limited Liability Company).

Efforts to Extend 0.5% MSME Income Tax

Seeing the great benefits of this policy, Minister of MSME Maman Abdurrahman affirmed his commitment to fight for the extension of the 0.5% MSME Income Tax incentive in order to maintain the competitiveness and sustainability of MSME businesses. In a working meeting with the House of Representatives (DPR RI), Maman said that his office is in intensive communication with the Ministry of Finance (MoF) to submit an official proposal.

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Positive Impact of 0.5% MSME Income Tax Policy

Ease the Tax Burden: The low rate makes it easier for MSMEs that are just starting out to stay afloat.
Improved Tax Compliance: With affordable rates and administrative simplicity, MSMEs tend to be more compliant in fulfilling their tax obligations.
Encouraging Economic Growth: As a sector that absorbs 97% of the workforce, the protection of MSMEs will have a direct impact on national economic stability.

Challenges of 0.5% MSME Income Tax Policy

However, Finance Minister Sri Mulyani believes that this scheme does not fully reflect justice. Taxes calculated based on turnover can be burdensome for businesses that have high operational costs or even make losses. In addition, the use of this scheme for too long can hinder MSMEs from developing to become more independent. This makes an evaluation of the 0.5% Final Income Tax incentive necessary.

Other Alternatives to Final Income Tax for MSMEs: Use of NPPN and Progressive Tariff

If the 0.5% MSME Final Income Tax policy is not extended, MSMEs with a turnover of up to IDR4.8 billion can use 2 scheme options, namely the Net Income Calculation Norm (NPPN) and the progressive rate of Income Tax Article 17 paragraph (1) letter a.

Net Income Calculation Norm (NPPN)
MSMEs can use NPPN if they fulfil the requirements according to PER 17/PJ/2015 such as:

Keeping records
Gross income is less than IDR4.8 billion a year
Income is not subject to Final Income Tax
Apply for the use of the NPPN method to the DGT max. 3 months from the beginning of the tax year

Progressive Rate of Income Tax Article 17
MSMEs with turnover above IDR4.8 billion or who choose not to use NPPN can use the progressive rate of Income Tax Article 17 at the following rates:

5% for taxable income up to IDR60 million.
15% for >Rp60 million – Rp250 million.
25% for >Rp250 million – Rp500 million.
30% for >Rp500 million – Rp5 billion.
35% for income above IDR5 billion.

Also Read: NPPN – Requirements, Amount, and Calculation Method

Experts’ Views on the Extension of MSME Income Tax Incentives

Executive Director of the Centre of Economic and Law Studies (Celios), Bhima Yudhistira, suggested that the government not only extend the incentive, but also lower the rate to 0.1% – 0.2% of turnover. This step is believed to encourage tax compliance and provide a stimulus for MSMEs to develop faster.

INDEF Deputy Director Eko Listiyanto added that fiscal incentives are still very much needed, especially for MSME sectors that have not fully recovered from the pandemic. Government’s Commitment to Simplify Tax Services

The Provincial Government of DKI Jakarta continues to strive to simplify the taxation process in order to provide the best experience for taxpayers.

The PajakOnline service is one of the innovations aimed at improving public tax compliance.