Tax Office Reveals Business Splitting Scheme to Exploit SME Tax Rate

The Directorate General of Taxes (DJP) at the Ministry of Finance has revealed a practice of business splitting, where entrepreneurs establish numerous limited liability companies (PTs) and limited partnerships (CVs) to continue enjoying the 0.5% final income tax facility for micro, small, and medium enterprises (MSMEs).

Director of Tax Dissemination, Services, and Public Relations Inge Diana Rismawanti stated that the DJP has observed a pattern of business actors setting up new entities when their turnover approaches a certain threshold. “We see a trend among taxpayers. A PT is registered, its turnover rises, then by the third year it begins to decline, and suddenly a new PT appears. The same happens with CVs,” Inge said during a discussion held by the Ministry of MSMEs in Jakarta on Wednesday, 24 June 2026.

According to DJP data, 14 individuals own more than 50 companies in the form of PTs and CVs, while another 45 individuals own between 26 and 50 such entities. Under tax regulations, individual MSME taxpayers receive a tax exemption on turnover up to Rp500 million per year, with turnover above that amount up to Rp4.8 billion subject to a final income tax rate of 0.5%.

The DJP found indications that business actors were establishing new entities to keep each company’s turnover below the Rp4.8 billion limit, thereby continuing to benefit from the lower MSME tax rate. Inge noted that for CVs, turnover typically increases from the first to the fourth year, but then declines in the fifth year as a new CV is created.

“This is what made us question why they are not proud to move up a class. They should be proud to grow bigger, perhaps increasing their turnover even further, rather than remaining micro or small,” Inge said. Consequently, under Government Regulation No. 20 of 2026, the government no longer provides the final income tax facility for MSMEs to business entities in the form of PTs and CVs. However, the facility remains available for individual taxpayers who meet the requirements.