Indonesian Gov’t to Lower Income Tax for Conventional, Online SMEs
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Indonesia will cut final income tax on small and medium enterprises by half and also impose taxes on e-commerce businesses to even the playing field between traditional brick and mortar and digital businesses, Finance Minister Sri Mulyani Indrawati said on Friday last week (19/01).
Under a current regulation, businesses earning less than Rp 4.8 billion ($360,600) a year are exempted from paying income tax and value added tax. They only have to pay a final tax of 1 percent of their total sales. The current income tax rate stands at 25 percent of profit, while the VAT is at 10 percent of sales.
“We are currently formulating [the rules] with the players […] The basic principle is to have the playing of field on the same level,” Sri Mulyani told reporters.
The minister said the government is planning to lower the income tax for small and medium enterprises (SME) to 0.5 percent of their sales. SMEs or individuals selling exclusively on e-commerce marketplaces will also be required to pay the tax.
Sri Mulyani said the sales threshold will also be lowered.
In the e-commerce roadmap rolled out in 2016 as part of the 14th economic policy reform package, the government expects up to $130 billion in e-commerce transactions in 2020.
“The majority of supplier merchants [for the e-commerce business] are SMEs. We are planning to revise the government regulation to lower the level,” Sri Mulyani said, adding that the regulation will not burden businesses.
The government has also included an income tax reduction for SMEs to be implemented in this year’s state budget.
Sri Mulyani said the process of collecting the tax has not been decided yet.
The Ministry of Finance is currently formulating details on future tax regulations on e-commerce businesses. The government aims to issue the regulation by mid-year, as it is still coordinating with other related ministries and agencies.
Questions & Answers
Q.What is the new proposed income tax rate for Indonesian SMEs?
What is the new proposed income tax rate for Indonesian SMEs?
The Indonesian government is planning to lower the income tax for small and medium enterprises to 0.5 percent of their total sales. This is a reduction from the current final tax of 1 percent on sales for eligible businesses.
Q.Which businesses will be affected by the new e-commerce tax regulations?
Which businesses will be affected by the new e-commerce tax regulations?
SMEs or individuals who sell exclusively on e-commerce marketplaces will be required to pay the new tax. This aims to create a level playing field between traditional and digital businesses in Indonesia.
Q.When does the Indonesian government expect to issue the new tax regulation?
When does the Indonesian government expect to issue the new tax regulation?
The government aims to issue the new regulation by mid-year. It is currently coordinating with other ministries and agencies to formulate the details on future tax regulations for e-commerce businesses.
Q.Are there any changes to the sales threshold for businesses to be considered SMEs?
Are there any changes to the sales threshold for businesses to be considered SMEs?
Yes, the sales threshold will also be lowered, according to Finance Minister Sri Mulyani Indrawati. The current regulation exempts businesses earning less than Rp 4.8 billion annually from income and value added tax.
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