Tax Office Uncovers Business Splitting Scheme to Retain 0.5% MSME Tax Rate
The Directorate General of Taxes (DJP) at the Ministry of Finance has uncovered a practice among business actors who establish numerous new business entities to retain the MSME tax facility in the form of a 0.5% final Income Tax (PPh) rate. This finding is one of the reasons the government changed the tax incentive scheme for business entities in Government Regulation (PP) 20.
“We see a trend where, for example, a taxpayer registers a PT, and its turnover will appear to rise. Once it reaches the third year, the turnover starts to drop immediately. Then, new PTs begin to emerge. It is the same with CVs. From the first year to the fourth year, their turnover keeps increasing. Once they enter the fifth year, the turnover drops straight away, and then new CVs spring up. That is what we have been observing,” said Inge Diana Rismawanti, Director of Counselling, Services, and Public Relations at the DJP, at the Ministry of MSMEs office in Jakarta on Wednesday (24/6).
According to Inge, the DJP’s monitoring indicates that some business actors deliberately form new business entities to continue receiving the 0.5% final PPh facility, which was previously granted for a specific period for both PTs and CVs. The DJP even found a number of individual taxpayers who own dozens of business entities simultaneously. Based on data held by the tax authority, there are 14 individual names recorded as owning more than 50 companies. Additionally, there are 45 individual names who control between 26 and 50 PTs or CVs.
She assessed that this practice shows some business actors prefer to maintain their status as micro and small enterprises rather than naturally scaling up their businesses. Yet, according to her, business actors should be able to leverage business growth to move up a class and increase their contribution to the economy. “They should be proud to move up a class. Perhaps their turnover could be even larger, no longer being a micro or small enterprise. But what is happening is they are exploiting that half-percent rate,” she said.
These findings served as one of the bases for the government in formulating the new policy through PP 20. Under this regulation, the 0.5% final PPh facility is no longer granted to business entities in the form of PTs and CVs, even if their turnover remains below Rp4.8 billion per year. Conversely, the government continues to provide this facility to individual taxpayers and sole proprietorships without a time limit, as long as they meet the applicable requirements. “That is why in PP 20, PTs and CVs are no longer given that facility. But for individuals, it is not limited as long as they are able to pay their taxes,” Inge concluded.