Don't Make a Mistake! Complete Explanation from the DGT Regarding MSME Taxation
The Directorate General of Taxes (DGT) of the Ministry of Finance has outlined the essential points of Government Regulation (PP) Number 20 of 2026, specifically concerning Micro, Small, and Medium Enterprises (MSMEs).
The DGT detailed five crucial points within this new policy:
The 0.5% Rate Facility and Turnover Threshold Remain in Effect: The 0.5% final income tax facility for MSMEs has not been abolished. The turnover threshold eligible for this facility remains at Rp4.8 billion per year. Furthermore, the provision for annual turnover of up/to Rp500 million for Individual Taxpayers remains tax-free.
Unlimited Administrative Ease for Certain Taxpayers: For Individual Taxpayers and Sole Proprietorships (PT Perorangan) that meet the requirements, the 0.5% final rate facility can be utilised indefinitely. Meanwhile, for Cooperatives, this facility can be used for four years from the date of registration. This aims to allow business owners to focus on business development without administrative burdens.
Targeted Objectives and Prevention of Policy Abuse: This ensures that tax incentives are truly received by growing businesses aiming to scale up. The government is also anticipating loopholes for abuse, such as the practice of splitting businesses or forming multiple new entities to avoid normal tax rates.
General Tax Mechanism Calculated from Profit, Not Turnover: For business entities (such as PT and CV) that are transitioning from the final rate to the general taxation mechanism, it is important to understand that tax is not calculated from total gross turnover. Tax is calculated based on net profit (net income) after deducting permitted operational expenses. Transitioning to the general mechanism does not automatically increase the tax burden.
System Balance and Transition Period: PP Number 20 of 2026 maintains a balance between supporting MSMEs and creating a healthy, fair taxation system. The implementation of this policy will be closely monitored by the DGT through a transition period, education, and intensive assistance to ensure MSMEs can adapt effectively.
The DGT reaffirmed the government’s commitment to supporting MSMEs as the backbone of the Indonesian economy. Through the issuance of Government Regulation Number 20 of 2026, the government is introducing refinements to tax policy to make it more targeted, simple, and sustainable.
The Director General of Taxes, Bimo Wijayanto, stated that this policy is designed to ensure MSMEs have ample space to grow, drive regional economies, and create jobs without being burdened by complex tax administration.
“From the beginning, the government has continued to support MSMEs through the evolution of tax policies, starting from PP 46/2013 (1% rate), PP 23/2018 (0.5% rate), to PP 55/2022. After a thorough evaluation, PP Number 20 of 2026 serves as a refinement to ensure government support is increasingly fair and targeted,” said Bimo Wijayanto.
The DGT also emphasised that the spirit of this policy is not merely to perform a regulatory function, but to position the government as a strategic partner to business owners.
“The government wants to be present not just as a regulator, but as a partner accompanying the journey of business actors. We want to ensure our MSMEs transform into businesses that are stronger, more independent, and highly competitive,” concluded Bimo.
The DGT urges all MSME players to utilise the educational and assistance services provided at all Tax Service Offices (KPP) as well as through official DGT channels.