World Bank Reveals Only 3% of Indonesia's SMEs Pay Tax

Jakarta — The World Bank has highlighted a significant tax compliance challenge in Indonesia, revealing that only 3% of micro, small, and medium-sized enterprises (SMEs) pay any form of tax, including income tax (PPh) or value-added tax (PPN).

According to a survey conducted by the World Bank in 2023 through the Worker and Enterprise Household Survey (WEHS), merely 3% of SMEs remit taxes to the government, whilst only around 7% of micro and small enterprises are formally registered.

This figure stands in stark contrast to the economic weight of Indonesia’s SME sector, which accounts for 99% of all companies and contributes 60% to gross domestic product (GDP).

“Only 3 per cent pay tax in any form, with median tax payments from all types of taxes less than 1% of income,” the World Bank stated in its report entitled “Reforms for a Formal and Prosperous Indonesia,” released on 10 March 2026.

The World Bank’s findings align with data from Indonesia’s Directorate General of Taxes (DJP), which shows that large registered companies contribute more than 95% of total tax revenue, whilst SMEs collectively contribute less than 5%.

However, the World Bank clarified that the low tax compliance among SMEs does not stem from deliberate tax avoidance or evasion, but rather from the fact that the vast majority of SMEs operate with annual revenues below the Rp500 million threshold.

“Avoiding taxes is rarely the primary reason for informality among Indonesia’s SMEs, because micro and small enterprises with gross annual revenues below Rp500 million are exempted from income tax and most other forms of taxation, including Value-Added Tax (PPN),” the World Bank explained.

Furthermore, the World Bank noted that for the small proportion of SMEs with revenues above the designated threshold, a simplified final income tax rate of 0.5% of gross revenue applies, provided they opt into this simplified tax scheme.