Indonesian Tax Authority Cracks Down on Tax Evasion Among UMKM Businesses

Uncovering Abusive Tax Practices

The Indonesian tax authority has identified certain businesses exploiting the 0.5% final income tax scheme meant for Micro, Small, and Medium Enterprises (UMKM). These businesses are allegedly engaging in practices such as revenue holding (bouncing) and firm splitting (pemecahan usaha) to maintain the lower tax rate. The 0.5% tax rate is applicable to UMKM with a maximum annual turnover of Rp 4.8 billion.

Tax Evasion Tactics Revealed

The tax authority's head disclosed during a meeting with Commission XI of the DPR RI that some taxpayers are manipulating their financial reporting to stay within the 0.5% tax bracket. This includes delaying revenue recognition and splitting businesses that have outgrown the UMKM classification to continue benefiting from the reduced tax rate. Such practices are considered tax evasion and are subject to penalties.

Implications for UMKM and Tax Compliance

While the 0.5% final income tax scheme is designed to support UMKM by reducing their tax burden, its misuse can distort tax revenues and create an uneven playing field. The tax authority is taking steps to address these abusive practices and ensure compliance with tax regulations. Businesses found guilty of tax evasion may face legal consequences, including fines and potential loss of the tax benefit.