Indonesia has made the final income tax exemption permanent for Micro, Small, and Medium Enterprises (MSMEs).
Previously in September, Coordinating Minister for Economic Affairs Airlangga Hartarto announced that the scheme would be extended until 2029, rather than renewed annually. At the time, the statement was seen as providing certainty for MSMEs over the medium term.
However, the policy direction evolved further. By mid‑November, Minister of MSMEs Maman Abdurrahman clarified that the exemption is not limited to 2029 but applies permanently, giving MSMEs long‑term assurance. He explained that businesses with annual turnover below IDR 500 million are fully tax‑free, while those with turnover up to IDR 4.8 billion face a 0.5% final tax.
“It has been decided. For MSMEs with turnover under Rp500 million, it’s 0 percent. For turnover below Rp4.8 billion in one year, the rate is 0.5 percent,” said Minister Maman to the media, as quoted by Pajak.com on Tuesday, November 18, 2025.
Anti-Avoidance Measures
The permanent exemption does not mean Indonesia is positioning itself as a tax haven. To ensure only genuine MSMEs benefit, the government is tightening tax monitoring by revising regulations to curb evasion tactics. This permanence has therefore drawn closer scrutiny.
Indonesia’s Director General of Taxes, Bimo Wijayanto, underscored the concern, revealing that some entrepreneurs have been abusing the tax scheme by disguising themselves as MSMEs, holding back turnover, or splitting firms to stay under the threshold.
“There are several practices by taxpayers who receive the 0.5% final income tax facility, such as bouncing or holding back turnover, and firm splitting or breaking up businesses,” Bimo said at the Parliamentary Complex in Jakarta, Monday (17/11).
To address this, the Ministry of Finance is drafting revisions to Government Regulation No. 55/2022, introducing anti‑avoidance rules to prevent misuse while preserving the benefits for genuine MSMEs.
“We are proposing amendments to Article 57 paragraphs 1 and 2 in Chapter 10, to restructure the subjects of the 0.5% final income tax for taxpayers with certain gross turnover, by excluding taxpayers who could potentially be used as a means of tax avoidance — an anti‑avoidance rule,” Bimo added.
Bimo’s statement refers to tightening eligibility for the 0.5% MSME tax facility. The revision would ensure only genuine MSMEs benefit, while larger businesses disguising themselves as small enterprises to avoid higher taxes would be excluded.
Extend to Foreign Investment
This effort to safeguard the MSME tax facility is part of a broader push to strengthen Indonesia’s tax base. Beyond domestic enterprises, authorities are also scrutinizing foreign investment flows, which have grown but not always translated into higher tax revenues.
While the MSME tax facility is designed exclusively for domestic small businesses, Indonesia’s broader tax monitoring agenda also extends to foreign direct investment. Authorities stress that foreign capital inflows fall outside the MSME framework, yet they too require closer scrutiny to ensure they contribute fairly to state revenues.
Data from the Indonesia Investment Coordinating Board (BKPM) shows that while foreign direct investment (FDI) has increased, it has not automatically boosted state tax receipts. Rising inflows from low‑tax jurisdictions such as Bermuda, the British Virgin Islands (BVI), and the Cayman Islands highlight Indonesia’s growing exposure to offshore financial centers (OFCs).
According to BKPM, capital from these jurisdictions tends to fluctuate sharply and is concentrated in sectors with limited job creation, such as paper, logistics, and services. This pattern strengthens suspicions of profit‑shifting by multinational companies through subsidiaries in low‑tax countries to reduce their tax obligations in Indonesia.
This phenomenon, known as phantom foreign direct investment, refers to investments that are legally recorded but do not reflect real economic activity within the country.
The BSI Institute Quarterly Report, Volume III 2025, recommends that the government strengthen mechanisms for screening and classifying investments so that incoming capital truly adds value to the national economy. One concrete step proposed is the implementation of beneficial ownership transparency, ensuring that every investment entity has clarity regarding its ultimate beneficial owner.
Partnering with Seven Stones Indonesia
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