Indonesian Tax Authority Targets Tax Avoidance in SME Sector

Regulatory Crackdown on Misuse of Preferential Tax Rate

The Indonesian Directorate General of Taxes (DJP) has uncovered significant tax avoidance practices among businesses exploiting the 0.5% final income tax rate intended for Micro, Small, and Medium Enterprises (MSMEs). The tax authority, led by Director General Bimo Wijayanto, revealed that some businesses have been engaging in practices such as revenue suppression (bouncing) and business splitting (firm splitting) to remain eligible for the preferential tax rate.

Specific Tax Avoidance Practices Identified

1. Revenue Suppression: Businesses deliberately withholding revenue to maintain lower turnover figures
2. Business Splitting: Large enterprises breaking into smaller entities to qualify as MSMEs

Government Response and Regulatory Amendments

In response to these practices, the government is preparing to revise Government Regulation No. 55/2022 to prevent further misuse of the tax facility. The proposed amendments include changes to Article 57 paragraphs 1 and 2 of the regulation to exclude businesses that abuse the system. Director General Bimo Wijayanto emphasized the need to close loopholes that allow such tax avoidance schemes.