Government Ensures 0.5% MSME Tax Rate is Now Permanent
The government has confirmed that the 0.5% final Income Tax (PPh) rate for Micro, Small, and Medium Enterprises (MSMEs) is now permanent, following an amendment to Government Regulation (PP) Number 20 of 2026.
The Minister of Micro, Small, and Medium Enterprises (MSMEs), Maman Abdurrahman, stated that this policy was implemented to provide certainty for business owners after previous incentives were only extended periodically. “The only difference is that previously, extensions were limited to one-year periods; now, it is open for as many years as needed into the future, so it is no longer restricted,” Maman said during a press conference in Jakarta on Wednesday.
He added that there will be no changes or increases to the tax rate for MSMEs. Business owners with an annual turnover below IDR 500 million will continue to be subject to a 0% tax rate, while those with turnovers up to IDR 4.8 billion will be subject to the 0.5% final rate.
According to Maman, this permanent policy follows presidential directives to ensure MSMEs have business stability and are no longer shadowed by regulatory uncertainty. However, the government continues to make adjustments to ensure incentives are targeted correctly. Maman noted that evaluations over recent years revealed practices of abuse by large enterprises, such as splitting business entities to qualify for the 0.5% final PPh facility.
Consequently, the 0.5% final PPh rate will remain available to individual entrepreneurs with turnovers below IDR 4.8 billion. For non-individual business entities, such as Limited Liability Companies (PT) and Limited Partnerships (CV), taxation will be based on net profit. Nevertheless, the government still provides an incentive in the form of a 50% tax rate reduction from the normal 22% rate for non-individual PT and CV entities with turnovers below IDR 4.8 billion.
The government revised the 0.5% final PPh provisions through Government Regulation (PP) Number 20 of 2026 concerning the Adjustment of Income Tax Regulations, which amends PP Number 55 of 2022. Under the new rules, the 0.5% final PPh facility is limited to individual taxpayers, individual companies, and cooperatives. Under previous regulations, the facility could also be utilised by CVs, firms, PTs, and BUMDes (Village-Owned Enterprises).
The government is providing a transition period for business entities currently using the 0.5% final PPh rate. Once the transition period ends, these entities will be subject to normal PPh rates in accordance with applicable regulations. Additionally, the government has removed the time limit for the use of the 0.5% final PPh rate for individual taxpayers while tightening regulations to prevent tax avoidance practices, such as splitting businesses into multiple small entities. Furthermore, the regulations clarify that certain professions, including freelance work and service sectors such as experts, as well as creative and entertainment industry players, can no longer utilise the MSME final PPh scheme and will instead be subject to normal PPh rates.