PP 23 of 2018 – Decrease in MSME Tax Rates to 0.5%

Starting from the enactment of PP 23 of 2018 on 1 July 2018 as a substitute for PP 46 of 2013 is a positive response from the government regarding complaints from MSME actors. MSME tariffs which have been priced at 1% since gross turnover have now been cut by the tax rate to 0.5%. Now MSME players can breathe a sigh of relief with the reduction in tax rates.

What is the mechanism of PP No. 23 of 2018? Here’s the explanation

PP 23 is an income tax from a business that is received or obtained by a taxpayer who has certain gross circulation, ie not exceeding 4.8 billion in one tax year. The income received is subject to final Income Tax with a tax rate of 0.5%. Whereas the income excluded from the object of PP 23 of 2018 is:

  • Income received or obtained by the WP OP from services related to free work.
  • Income received or obtained abroad where the tax is owed or paid abroad.
  • Income that has been subject to final Income Tax with the provisions of the tax laws and regulations.
  • Income excluded as tax object.

Taxpayers who are taxed are Personal WPs and Corporate Taxpayers in the form of cooperatives, Commander Associations, Firms or Limited Liability Companies that receive or earn income with gross circulation not exceeding 4.8 billion in one tax year.

Excluding Taxpayers as referred to in PP 23 of 2018 are:

Taxpayers choose to be subject to Income Tax based on the rate of Article 17 paragraph (1) letter a, Article 17 paragraph (2a), or Article 31E of the Income Tax Law;
Entity taxpayers in the form of Commander Association or Firms formed by several taxpayers who have special expertise in delivering similar services with services related to free work;

Corporate taxpayers obtain Income Tax facilities under the Income Tax Act Article 31A or PP Number 94 of 2010 concerning Taxable Income Calculation and Repayment of Income Taxes in the Current Year and their amendments;

Taxpayer in the form of a permanent establishment (BUT).
Unlike the previous PP 46 of 2013, the replacement regulation is PP No. 23 of 2018 regulates the time period in implementing this final Income Tax. Based on Article 5 it is stated that the time period is as follows:

  • 7 (seven) Tax Years for Individual Taxpayers
  • 4 (four) Tax Year for corporate taxpayers in the form of cooperatives, communal associations, or firms; and
  • 3 (three) Tax Years for corporate taxpayers in the form of limited liability companies.
  • This period is calculated from:

Registered Taxpayer Tax Year, for taxpayers registered since the enactment of this Government Regulation, or The Tax Year applies to this Government Regulation, for Taxpayers who have registered before the entry into force of this Government Regulation. The income tax payable can be repaid by self-paid by the taxpayer who has certain gross circulation no later than the 15th of the following month or by deducting it by the tax cutter or collector in the event that the taxpayer conducts a transaction with the party designated as the tax cutter or collector.

The government’s reduction in MSME tax rates is indeed worth appreciating. By lowering the tax rate to 0.5%, it is expected that MSME entrepreneurs can develop their business and contribute more to the country without eliminating the success value in it given the importance of taxes for state revenues.


Source: PP No. 23 of 2018

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