AMRO Urges Indonesia to Improve VAT Collection Efficiency
JAKARTA, DDTCNews — The ASEAN+3 Macroeconomic Research Office (AMRO) is urging Indonesia to improve the efficiency of its value-added tax (VAT) collection. Indonesia's VAT collection has been deemed inefficient due to the high taxable entrepreneur (PKP) threshold and the large number of goods and services exempt from VAT.
The inefficiency of VAT collection is reflected in Indonesia's low VAT C-efficiency ratio. "VAT collection efficiency can be improved by lowering the PKP threshold and evaluating goods and services exempted from VAT," AMRO wrote in its Annual Consultation Report: Indonesia — 2025, as quoted on Monday (23/6/2025).
Currently, the PKP threshold in Indonesia stands at Rp4.8 billion, or approximately US$315,000. By comparison, PKP thresholds in neighbouring countries are set below US$55,000.
The government established this threshold to ease the tax compliance burden and enhance the competitiveness of Indonesian micro, small and medium enterprises (MSMEs). With a reduced compliance burden, MSMEs are expected to continue growing and expanding.
The problem, however, is that business operators deliberately keep their turnover below Rp4.8 billion per year to avoid the obligation of being registered as taxable entrepreneurs and collecting VAT. This behaviour hampers economic growth and creates tax collection inefficiencies.
According to AMRO's records, Indonesia is currently evaluating the existing PKP threshold. "The government is considering expert recommendations to lower the PKP threshold and is holding internal discussions on the matter," AMRO wrote.
For context, taxpayers whose business turnover has not yet reached Rp4.8 billion per year are entitled to utilise the MSME final income tax scheme at a rate of 0.5 per cent and are exempt from the obligation to be registered as taxable entrepreneurs.
Towards the end of last year, the government had planned to lower the threshold from Rp4.8 billion to Rp3.6 billion. However, the Directorate General of Taxes (DJP) subsequently denied the plan. "To date, the government has no plans to lower the turnover threshold for entrepreneurs using the 0.5 per cent income tax rate, nor the threshold for PKP registration, from Rp4.8 billion per year to Rp3.6 billion per year," DJP stated in an official statement released in December 2024.
The inefficiency of VAT collection is reflected in Indonesia's low VAT C-efficiency ratio. "VAT collection efficiency can be improved by lowering the PKP threshold and evaluating goods and services exempted from VAT," AMRO wrote in its Annual Consultation Report: Indonesia — 2025, as quoted on Monday (23/6/2025).
Currently, the PKP threshold in Indonesia stands at Rp4.8 billion, or approximately US$315,000. By comparison, PKP thresholds in neighbouring countries are set below US$55,000.
The government established this threshold to ease the tax compliance burden and enhance the competitiveness of Indonesian micro, small and medium enterprises (MSMEs). With a reduced compliance burden, MSMEs are expected to continue growing and expanding.
The problem, however, is that business operators deliberately keep their turnover below Rp4.8 billion per year to avoid the obligation of being registered as taxable entrepreneurs and collecting VAT. This behaviour hampers economic growth and creates tax collection inefficiencies.
According to AMRO's records, Indonesia is currently evaluating the existing PKP threshold. "The government is considering expert recommendations to lower the PKP threshold and is holding internal discussions on the matter," AMRO wrote.
For context, taxpayers whose business turnover has not yet reached Rp4.8 billion per year are entitled to utilise the MSME final income tax scheme at a rate of 0.5 per cent and are exempt from the obligation to be registered as taxable entrepreneurs.
Towards the end of last year, the government had planned to lower the threshold from Rp4.8 billion to Rp3.6 billion. However, the Directorate General of Taxes (DJP) subsequently denied the plan. "To date, the government has no plans to lower the turnover threshold for entrepreneurs using the 0.5 per cent income tax rate, nor the threshold for PKP registration, from Rp4.8 billion per year to Rp3.6 billion per year," DJP stated in an official statement released in December 2024.