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MSME tax limbo: Government inaction fuels uncertainty
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Offering assistance: An official explains to a taxpayer the use of the citizenship identity number as their taxpayer identification number on March 3, 2024, at Palangka Raya tax office in the Central Kalimantan capital city.
(Antara/Auliya Rahman)
I
ndonesia's micro, small and medium enterprises (MSMEs) are grappling with mounting uncertainty as the promised extension of the 0.5 percent final income tax rate remains unfulfilled.
This delay, despite initial promises of an "economic stimulus package for prosperity", leaves these vital businesses in regulatory limbo, casting a shadow over their future.
The issue extends beyond a simple rate extension; Government Regulation (PP) No. 23/2018's seven-year limit on the 0.5 percent tax facility creates long-term uncertainty for businesses that utilized the relief since its inception in 2018. This inaction undermines consistent support for the backbone of Indonesia's economy.
The lack of clear guidance has significant consequences. While the Harmonization of Tax Regulations (HPP) Law and PP No. 55/2022 provided exemptions for taxpayers with gross turnover below Rp 500 million (US$30,300), the uncertainty surrounding the Net Income Calculation Norm (NPPN) submission deadline leaves businesses unsure whether to maintain the 0.5 percent rate, switch to NPPN or adopt full bookkeeping.
This confusion is exacerbated by the absence of a clear transition plan, forcing MSMEs to navigate a complex and evolving tax landscape without a roadmap.
To ensure a smoother transition, the government should adopt a tiered system that gradually transitions MSMEs to a net-income-based tax system.
This should be coupled with substantial support for financial management and bookkeeping capacity building, including extending the final income tax incentive for micro-enterprises, a gradual transition for larger SMEs, investments in MSME formalization and simplified bookkeeping standards to ease compliance burdens.
