When is the MSME tax of 0.5% valid? Based on PP 23/2018 Article 5 paragraph (1), the maximum period for taxpayers to use the Final Income Tax rate of 0.5% is seven years for individual taxpayers, four years for corporate taxpayers in the form of cooperatives, CVs or firms, and three years for corporate WP in the form of PT (Limited Liability Company). For a complete explanation of the latest MSME tax rules for 2023, read this article to the end.
What is the MSME Final Income Tax Rate?
MSME Final PPh is a tax on business income (turnover) received or earned by the taxpayer. If based on PP No. 46 of 2013, the MSME Final Income Tax rate is 1% of gross turnover or turnover. However, this tax rate is no longer valid.
MSMEs’ current tax rates follow the latest tax rules, namely Government Regulation 23 of 2018, concerning Income Tax on Income from Businesses Received or Obtained by Taxpayers who Have a Certain Gross Turnover. This regulation states that the MSME final income tax rate is 0.5% and is effective from 1 July 2018.
Taxpayers who can use MSME final income tax
As the name implies, namely MSME Final PPh, those who can use this tax rate are taxpayers (WP) with a gross turnover of no more than 4.8 billion Rupiah in one tax year. The following taxpayers fall into this category:
- Individual taxpayers, namely individuals or taxpayers owned by individuals and have a certain amount of gross turnover.
- Institutional WP, namely a group of people or a group of capital, whether doing business or not, but having a gross turnover. The form of the body can vary, such as cooperatives, firms, CVs, pension funds, foundations, PTs, and so on.
The MSME tax of 0.5% lasts until when?
As explained at the beginning of this article, the MSME Final Income Tax rate of 0.5% does not apply forever. This means there is a maximum time limit for using the tax rate according to PP 23 of 2018 Article 5 paragraph (1). The conditions are as follows:
- WP individual: 7 years.
- Entity WP (in the form of CV, Firm, Cooperative): 4 years.
- WP Agency in the form of PT (Limited Liability Company): 3 years.
So, if you just started a business in 2018 and started paying taxes in 2019, you can use the MSME final income tax rate of 0.5%. Because a private person still owns your business, you can use this rate for seven years. Last year you can use this 0.5% rate in 2025.
What if your business is in the form of a PT? If you use this rate for the first time in 2023, then you can use MSME Final Income Tax of 0.5% in the last year in 2026.
Content of Government Regulation Number 55 of 2022
On December 20, 2022, the Government issued PP Number 55 of 2022 concerning Adjustments to Regulations in the Income Tax Sector. In this regulation, the application of MSME Final PPh of 0.5% is not only enjoyed by individual taxpayers, and corporate taxpayers in the form of cooperatives, CVs, firms and PT but can also be used by Joint Village-Owned Enterprises (BUMDesma) and Business Entities. Village Owned (BUMdes), as long as the gross circulation in one tax year is a maximum of IDR 4.8 billion.
In addition, PP No. 55 of 2022 also regulates the provision of income tax exemptions for taxpayers whose business turnover is at most 500 million Rupiah in one tax year. This means that the MSME Final PPh rate of 0.5% only applies if your gross circulation or business turnover in one year is more than 500 million Rupiah and a maximum of 4.8 billion Rupiah.
Final Income Tax Facility for MSME
1. Final PPh 0.5 Percent
The rules regarding the 0.5% final income tax only apply to MSMEs whose annual turnover is more than 500 million and less than 4.8 billion Rupiah. Whereas for MSMEs in the form of business entities, the final PPh of 0.5% is calculated from the acquisition of turnover from all branches with a maximum total of 4.8 billion.
2. Incentives in the Form of Income Tax Exemption
The incentive for PPh exemption from the government is very beneficial for all MSMEs. To enjoy this facility, MSMEs only need to provide actual monthly reports.
3. Business Turnover Value in 1 Taxable Year
For annual turnover below IDR 4.8 billion, a PPh rate of 0.5 per cent is imposed, while for more than IDR 4.8 billion, the normal PPh rate applies.
Exclusion of Income from the Calculation of Accumulated Gross Turnover (Omzet)
Income that is excluded, among other things: individual taxpayer income from freelance services, income from abroad that has paid taxes in the country concerned, income that has been subject to MSME tax, and income that is not a tax object.
Exemptions for Taxpayers who Do Not Get 0.5 Percent Final Income Tax Facility
Taxpayers who do not get Final Income Tax facilities use the calculation of Income Tax Article 17 of the Income Tax Law, so are business entities in the form of CVs or firms established with certain skills, and business entity taxpayers who have received facilities from other laws and regulations.
How to Calculate Taxes for MSMEs
1. An example of an MSME with an income of 20 million/month
If your MSMEs have a large turnover of 20 million per month, then your total turnover will be IDR 240 million in one year. This figure is still below IDR 500 million from the provisions stipulated in PP no. 55 of 2022, so your MSME is not subject to Final Income Tax.
2. An example of an MSME with an income of IDR 100 million/month
If your business turnover is IDR 100 million in one month, then the total turnover in a year is IDR 1.2 billion. This figure has exceeded the maximum gross circulation limit of IDR 500 million, so you will be subject to the MSME Final PPh rate.
- The IDR 500 million generated in the first five months is tax-free.
- Then, taxable income will be calculated from the 6th to the 12th month, namely IDR 100 million x 7 months = IDR 700 million.
- Amount of tax to be paid: IDR 700 million x 0.5% = IDR 3,500,000,-
To accurately calculate the amount of tax that must be paid each year, like it or not, you must have neat financial records, including business turnover every month. For that, you can take advantage of a cashier application that easily records all sales transactions neatly and automatically. Download the iReap cashier application by clicking the button below.