New tax regulation on Income Earned by Small-Scale Businesses

On 8 June 2018, the Government issued a Regulation No. 23 year 2018 (“GR-23/2018”) regarding income tax on income received or earned by taxpayers having gross income up to certain amount. GR-23/2018 revokes the previous GR-46/2013. GR-23/2018 is effective from 1 July 2018.

GR-23/2018 is aiming to encourage the public to participate in formal economic activities by granting facility and justice to taxpayers having income up to a certain amount for a certain period. The summary of the new regulation is as follows:

  • There is no change in the threshold of the category/ definition of “small-scale business”, i.e. a local taxpayer having income up to IDR4,800,000,000 per annum.
  • The income tax tariff is reduced from 1% to 0.5%. The type of tax is “final”.
  • The new regulation clearly stipulates that the taxpayer (individual or corporate) is allowed to adopt the normal tax regime (non-final tax) by submitting a notification to the Tax Office.
  • The new regulation provides clearer categories of income that are not subject to (excluded from) GR23/2018, i.e.:
    1. Income received by an individual taxpayer from services in respect of free employment e.g. lawyer, accountant, architect, doctor, consultant, notary, appraiser, actuary, singer, broker, etc.
    2. Income received or earned abroad for which the tax is payable or already paid abroad;
    3. Income already subject to final tax based on other provisions; and
    4. Income not subject to tax.
  • The new regulation limits the period for application of the 0.5% tax rate as follows:
    1. 7 years for individual taxpayers;
    2. 4 years for corporate taxpayers in the form of cooperative, partnership, or firm; and
    3. 3 years for corporate taxpayer in the form of limited liability company (Perseroan Terbatas).

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