The Indonesian government is tightening oversight of the 0.5% final tax scheme for MSMEs amid growing concerns over widespread abuse by larger businesses.
Coordinating Minister for Economic Affairs Airlangga Hartarto has warned business owners not to exploit Indonesia’s 0.5% final income tax incentive for MSMEs through the practice of “invoice rotation”.
Airlangga warned that authorities are aware of tax avoidance tactics, following the government’s decision to extend the 0.5% final tax scheme for enterprises with annual turnover between USD 25,800 and USD 309,000 until 2029.
“Don’t open a new store and then shift the turnover from one that already exceeds USD 309,000 to your neighbor’s shop, exchanging invoices. We already understand how this invoice rotation works in the market. We must prevent this,” he said at the Investor Daily Summit 2025 in Jakarta, on Thursday (October 9, 2025), as quoted by Bisnis.
Economists Call for Stronger Anti-Avoidance Rules
Senior economist Aviliani from the Institute for Development of Economics and Finance (Indef) said the policy extension is appropriate, especially amid weakening consumer purchasing power. However, she cautioned that it could lead to moral hazard if not monitored closely.
She noted that some entrepreneurs deliberately split their companies to keep each entity’s turnover below the USD 309,000 threshold, allowing them to continue enjoying the 0.5% tax rate.
As Vice Chair for Macro-Micro Economic Policy Analysis at the Indonesian Chamber of Commerce and Industry (Kadin), she emphasized the need for tighter regulations and supervision of the policy. She suggested that the Directorate General of Taxes could leverage the Coretax system to better identify which taxpayers still qualify for the incentive.
Under Indonesia’s tax regulation, businesses with an annual turnover of up to USD 309,000 (approximately are categorized as Micro, Small, and Medium Enterprises (MSMEs) and are eligible for the 0.5% final income tax incentive. Meanwhile, businesses with turnover above USD 309,000 are classified as “Taxable Entrepreneurs” and are subject to the standard corporate income tax rate of 22%. This distinction aims to provide relief for genuine MSMEs while ensuring larger businesses pay taxes according to their scale.
Addressing the issue, Fajry Akbar, Head of Research at the Center for Indonesia Taxation Analysis (CITA), proposed two policy adjustments: lowering the turnover cap so only micro and small businesses benefit, and applying General Anti-Tax Avoidance Rules (GAAR) under Law No. 7/2021 to stop abuse.
“However, this requires technical regulations. Genuine MSMEs should still receive incentives,” he added.
Finance Ministry Prepares Database to Monitor Abuse
Finance Minister Purbaya Yudhi Sadewa also confirmed that some MSMEs with turnover above USD 309,000 deliberately form new companies to keep enjoying the 0.5% tax rate.
To counter this, the government plans to develop a dedicated database for MSMEs receiving the incentive, integrating it into the Coretax system and the Ministry of Law and Human Rights’ AHU platform.
“This is a new effort. I don’t expect significant results within a year, but it will help filter those abusing the scheme,” he explained in an online media discussion on Friday (October 10, 2025).
The policy aims to ease the tax burden and simplify administration for MSMEs. In 2025, the government allocated USD 129 million to support the scheme, covering 542,000 registered MSME taxpayers.
Source: Bisnis, CNBC Indonesia
Photo Credit: Shutterstock
