NEW TAX REGULATION ON INCOME EARNED BY SMALL-SCALE BUSINESSES
Reduction of Income Tax rate for Small-Scale Business from 1% to 0.5%
On 8 June 2018, the Government issued a Regulation No. 23 year 2018 (“GR-23/2018”) regarding income tax on income received or earned by taxpayers having gross income up to certain amount. GR-23/2018 revokes the previous GR-46/2013. GR-23/2018 is effective from 1 July 2018.
GR-23/2018 is aiming to encourage the public to participate in formal economic activities by granting facility and justice to taxpayers having income up to a certain amount for a certain period.
The summary of the new regulation is as follows:
- There is no change in the threshold of the category/ definition of “small-scale business”, i.e. a local taxpayer having income up to IDR4,800,000,000 per annum.
- The income tax tariff is reduced from 1% to 0.5%. The type of tax is “final”.
- The new regulation clearly stipulates that the taxpayer (individual or corporate) is allowed to adopt the normal tax regime (non-final tax) by submitting a notification to the Tax Office.
- The new regulation provides clearer categories of income that are not subject to (excluded from) GR23/2018, i.e.:
- Income received by an individual taxpayer from services in respect of free employment e.g. lawyer, accountant, architect, doctor, consultant, notary, appraiser, actuary, singer, broker, etc.
- Income received or earned abroad for which the tax is payable or already paid abroad;
- Income already subject to final tax based on other provisions; and
- Income not subject to tax.
- The new regulation limits the period for application of the 0.5% tax rate as follows:
- 7 years for individual taxpayers;
- 4 years for corporate taxpayers in the form of cooperative, partnership, or firm; and
- 3 years for corporate taxpayer in the form of limited liability company (Perseroan Terbatas).
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