This Regulation Could Balance Ease and Fairness in MSME Taxation

Jakarta - The government has issued Government Regulation Number 20 of 2026 (PP No. 20/2026) concerning amendments to PP No. 55/2022 on adjustments to income tax (PPh) regulations on 22 April 2026. The revision of the final PPh scheme for micro, small, and medium enterprises (MSMEs) aims to create a tax policy that supports healthy business, encourages formal economic participation, and simultaneously closes tax avoidance loopholes.

Essentially, the imposition of PPh on business income received or earned by taxpayers with a certain gross turnover has been regulated in Articles 56 to 63 of PP No. 55/2022. The core of that regulation is the application of a 0.5% final PPh rate for MSMEs, which is only available for individual taxpayers with a maximum annual turnover of Rp4.8 billion, who can use the 0.5% final PPh rate on gross turnover indefinitely.

Meanwhile, corporate taxpayers in the form of cooperatives can utilise the 0.5% final PPh rate on gross turnover for a maximum period of four years from registration. Business entities in the form of limited partnerships (CV), limited liability companies (PT), firms, and village-owned enterprises (BUMDes/BUMDesMa) cannot enjoy this rate. To accommodate the transition period, PP No. 20/2026 provides leeway for these entities to use the 0.5% final MSME PPh rate until their usage period expires.

First Expert Tax Counsellor at the Directorate General of Taxes (DJP) Didik Yandiawan stated that PP No. 20/2026 is an economic policy package providing incentives for MSMEs. It includes granting another opportunity for individual taxpayers and individual companies with a certain gross turnover to utilise the 0.5% final MSME PPh rate.

“In line with international standards, the regulation inserts Article 20A which explicitly regulates the prohibition of charging bribery costs to public officials. This step is consistent with global practices and supports Indonesia’s membership process in the OECD (The Organisation for Economic Co-operation and Development),” Didik explained in a written statement on Friday (12/6/2026).

He emphasised that the tightening measures were taken to minimise tax avoidance loopholes used by corporations. “It is true that not all CVs, PTs, firms, and BUMDes/BUMDesma have large-scale businesses. However, since the implementation of the final MSME PPh pioneered through PP No. 46/2013, PP No. 23/2018, to PP No. 55/2022, the government’s intended goal has not been achieved,” he added.

MSMEs that should have graduated and switched to using the corporate PPh rate instead resorted to tax avoidance efforts through firm-splitting and income bunching. He outlined several commonly used methods, including establishing new legal entities to split gross turnover. For example, PT A in its second year has a turnover exceeding Rp4.8 billion annually. “To avoid being subject to the corporate PPh rate, the owner of PT A engages in tax avoidance by forming PT B, so that both PT A and PT B maintain a gross turnover that qualifies for the final MSME PPh rate facility,” Didik said.

Didik asserted that such efforts deviate from John Rawls’ Theory of Justice. In the public sphere, many PTs, CVs, firms, and BUMDes/BUMDesma are concerned about the shift in the application of this rate. “In fact, the 0.5% final MSME PPh rate is multiplied by gross turnover without considering the taxpayer’s margin conditions or fiscal profit and loss statements. Whereas, under PP No. 20/2026, if the entity experiences a fiscal loss, it does not need to pay corporate PPh,” he clarified.

Looking at the history of corporate PPh rate application in Indonesia, taxation on net fiscal profit has undergone rate changes over time. From 2009 to 2019, the corporate PPh rate was 28% of taxable income. After tax reform through the enactment of Law No. 7 of 2021 on Harmonisation of Tax Regulations, the rate dropped to 22% of taxable income.

Furthermore, PTs, CVs, firms, and BUMDes/BUMDesma can utilise the rate under Article 31E paragraph (1) of the PPh Law. If the gross turnover is between Rp4.8 billion and Rp50 billion, the corporate taxpayer receives a 50% rate reduction facility on the taxable income from the Rp4.8 billion portion of gross turnover. This means the rate is equivalent to 11%.

Beyond these points, PP No. 20/2026 affirms several aspects. First, freelance professions still cannot utilise final PPh through individual companies (Article 57 paragraph (2)). Second, if the combined turnover of an individual taxpayer and all companies they have established exceeds Rp4.8 billion annually, the final PPh facility can no longer be used (Article 57 paragraph (2) letter e and paragraph (4)). Third, the turnover of a husband and wife who fulfil their tax obligations separately is calculated jointly to determine eligibility for the final MSME PPh. Similar provisions also apply to the income of minor children (Article 58 paragraphs (2) and (3)).

This article provides concrete steps for calculating the estimated total combined gross turnover from one’s own business, a spouse’s business, minor children’s income, and all owned individual companies in the 2026 tax year. “If the gross income approaches or even exceeds Rp4.8 billion, individual taxpayers can consult with their registered tax office to use PPh calculations in accordance with regulations,” Didik continued.

Fourth, cooperatives only receive the final PPh facility for four years (Article 57 paragraph (2) letter f). Fifth, the extension of the final PPh validity period for MSMEs, namely for individual taxpayers until 2026 and for cooperatives until 2028.