The government is currently preparing amendments to Government Regulation (Peraturan Pemerintah/PP) Number 55 of 2022 concerning Income Tax Adjustments. One of the main areas under review is the application of final income tax for micro, small, and medium enterprises (MSMEs).
According to Susiwijono Moegiarso, Secretary of the Coordinating Ministry for Economic Affairs, the government plans to impose a 0.5% final income tax rate on gross turnover with no time limit. He explained that a turnover-based tax system is simpler, more administratively efficient, and can broaden the taxpayer base.
This policy is also expected to encourage business formalization and strengthen purchasing power among lower-income groups, which is a crucial foundation for the domestic economy.
MSME Final Income Tax Regulatory Development in Indonesia
PP Number 46 of 2013
The first rules on final income tax for MSMEs were introduced through PP Number 46 of 2013 concerning Income Tax for Business Income Received or Earned by Taxpayers with Specific Gross Turnover. Under this regulation, taxpayers with an annual turnover of less than IDR 8.4 billion were subject to a 1% final income tax on their monthly turnover.
While the rate was relatively low, the system was final and therefore did not consider whether the taxpayer actually earned a profit or incurred a loss.
PP Number 23 of 2018
This regulation reduced the rate to 0.5%, but introduced a validity period:
- 7 years for individual taxpayers
- 4 years for cooperatives, CVs, and firms
3 years for limited liability companies
PP Number 55 of 2022
Through PP Number 55 of 2022, the government further clarified the rules for imposing the 0.5% final tax on MSMEs with a turnover of less than IDR 4.8 billion.
However, the regulation also states that the final tax does not apply to the following types of income:
- Income earned or received by individual taxpayers from service-based freelance professions, such as:
- legal, accounting, architectural, medical, consulting, notary, land deed, appraisal, and actuarial services;
- musicians, presenters, singers, comedians, film actors, soap opera actors, commercial talent, directors, film crews, photo models, models, stage performers, and dancers;
- athletes;
- advisors, teachers, trainers, lecturers, instructors, and moderators;
- authors, researchers, and translators;
- advertising agents;
- project managers or supervisors;
- intermediaries;
- sales agents;
- insurance agents;
- MLM or direct-selling distributors, and other similar activities.
- Income earned or received by individual taxpayers from service-based freelance professions, such as:
- Income earned overseas, which has been or is subject to tax abroad.
- Income subject to final tax under other specific tax regulations.
- Income that is exempt from tax objects.
Time Limit Removal in the Draft Amendment
In the latest draft of the 2025 amendment, the government intends to remove the time limit on the 0.5% final income tax for individual MSME taxpayers. For cooperatives, however, the time limit remains in place until 2029.
This change is expected to provide certainty for small and medium-sized businesses still in the early stages of development. A simple turnover-based system also makes tax administration faster and easier.
Impact and Expectations for MSMEs
The plan to eliminate the time limit for the 0.5% final income tax has generated mixed reactions. On one hand, the policy offers ongoing relief and encourages MSME compliance.
On the other hand, making the regime permanent could discourage MSMEs from transitioning to the general tax regime, which provides a more accurate picture of business profitability.
Even so, the government’s direction reflects a broader objective of simplifying the tax system and expanding the tax base, so that more MSMEs are integrated into the national tax framework.
To help business owners understand the upcoming changes, below are some frequently asked questions about the 0.5% MSME final income tax.
What is the 0.5% MSME final income tax?
It is a final income tax charged on business turnover or gross revenue at a fixed rate of 0.5%. Because it is final, it does not account for business profits or losses.
Who is eligible for the 0.5% rate?
Individual taxpayers, cooperatives, CVs, firms, and limited liability companies with an annual turnover below IDR 4.8 billion are eligible to apply the 0.5% final tax scheme.
How is the 0.5% tax calculated?
The calculation is straightforward:
Final Income Tax = 0.5% x Total Monthly Turnover
Example: For a monthly turnover of IDR 100 million, the tax due is IDR 500,000.
Is a tax return still required for MSMEs?
Yes. Although the tax is final, taxpayers must still file a tax return reporting their turnover and the tax paid during the year.
Will the 0.5% MSME final income tax become permanent?
Based on the current draft, the government intends to remove the time limit for individual taxpayers. For cooperatives, the limit remains until 2029.
