MSME Final Income Tax Facility of 0.5% is Expanded

The government has expanded the provision of a final Income Tax (PPh) facility of 0.5% for certain taxpayers who have a revenue of up to IDR 4.8 billion a year.

Previously, this facility was only used by individuals and corporate taxpayers in the form of Cooperatives, Limited Partnerships (CV) and Limited Liability Companies (PT). However, now it can be enjoyed by Village-owned Enterprises (BUMDes) or Joint Village-owned Enterprises (BUMDESma).

This is stated in the latest income tax policy, namely Government Regulation (PP) Number 55 of 2022 which is also a derivative of Law (UU) Number 7 of 2021 concerning Harmonization of Tax Regulations (HPP).

For the record, the provisions regarding the imposition of a final income tax of 0.5% for taxpayers with a revenue of IDR 4.8 billion and below have previously been regulated in Minister of Finance Regulation (PMK) Number 99/PMK.03/2018 which is an implementation of Government Regulation Number 23 of 2018.

The regulation, which has been in effect since 12 December 2022, also emphasizes the provision of additional incentives for individual taxpayers with a maximum revenue of IDR 4.8 billion, namely exemption from income tax up to IDR 500 million in one tax year.

In other words, the imposition of a final income tax of 0.5% for individual taxpayers is only carried out if they have revenue of more than IDR 500 million in one tax year.

Consolidated Gross Revenue

Determination of the amount of revenue of corporate taxpayers including the gross revenue of branch companies. In other words, the amount of revenue is calculated on a consolidated basis.

Meanwhile, for individual taxpayers who are married, but want an asset separation agreement in writing or their wife chooses to carry out her own tax rights and obligations, the amount of gross revenue is calculated based on the total income of the wife plus the husband.

Exception

It should be noted, not all taxpayers' income with a revenue of IDR 4.8 billion and below can get this facility. Some income is excluded from calculating cumulative gross revenue, including:

• Income earned by individual taxpayers from services in connection with independent work, for example experts, lawyers, notaries, musicians, athletes and others.
• Income from abroad on which taxes have been paid abroad
• Income that has been subject to final income tax in accordance with separate tax provisions;  and
• Income that is not a tax subject

In addition, not all taxpayers are included in the category of taxpayers with certain gross revenue subject to final income tax of 0.5%, namely:

1. Taxpayers who choose to be subject to income tax based on the rate of article 17 of the Income Tax Law
2. Corporate Taxpayers in the form of CVs or Firms formed by Taxpayers who have special expertise who do freelance work
3. Corporate Taxpayers who obtain facilities based on Article 31E of the Income Tax Law, PP 94 of 2010, and Articles 75 & 78 of PP 40 of 2021
4. Permanent Establishment (PE)

Specifically for taxpayers who choose to be subject to income tax based on the rate of article 17 of the Income Tax Law, they are required to submit notifications to the DGT and for subsequent tax years, cannot be subject to Final Income Tax of 0.5% based on PP 55/2022.

Temporary

The use of the final income tax facility for individual taxpayers and corporate taxpayers with a revenue of IDR 4.8 billion and below at 0.5% is temporary. It means that it has a maximum time limit.

Especially for individual taxpayers, the facility period is only valid for seven tax years since registration. Meanwhile, for corporate taxpayers in the form of cooperatives, CVs, firms, BUMDes and BUMDesma, the facility is valid for four years. For corporate taxpayers in the form of PT will only get the facility for three years.

This period of time is valid since being registered as a WP.  Except, for corporate taxpayers of BUMDes, BUMDesma and limited liability companies that were registered before the regulation took effect, the facilities can be enjoyed from the time the rules apply.

If the time period expires, then the calculation of income tax payable will refer to generally accepted provisions, namely Article 17 of the Income Tax Law.

Tax Payment

Furthermore, income tax payable on turnover of more than IDR 500 million must be paid in two methods. First, it is paid up every month by the taxpayer who has a revenue of IDR 4.8 billion in a year.

More detailed provisions regarding the final income tax payment mechanism are not regulated in this policy, but will be set forth in more technical regulations, namely the Minister of Finance Regulation (PMK).

The second method is deducted or collected every time the taxpayer makes a transaction with the party appointed to collect or deduct the final income tax. In order to be able to deduct or collect the final income tax, the taxpayer must submit a request for a certificate from the DGT.

Later, the DGT will issue a statement stating that taxpayers are subject to final income tax according to this rule.  Regarding the procedure for submitting an application for a certificate, it will be regulated in more detail in the PMK.(ASP/SYF/KEN)