Global Tax Alert | 28 June 2013

Indonesia issues regulation on 1% tax rate on gross revenue applicable to small and medium taxpayers

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On 12 June 2013, Government Regulation No 46 Year 2013 (PP 46) was issued. PP 46 introduces a final tax regime on business income of certain individual and corporate taxpayers, excluding permanent establishments, with a gross turnover of less than Rp 4.8 billion (USD 482,000) per annum. Qualifying taxpayers are subject to a 1% tax on their monthly gross turnover. The tax is in the nature of an income tax and represents a final tax liability.

The following taxpayers are excluded from this final tax:

  • individual taxpayers who, in performing trading and/or service activities, use assembled infrastructure and use public facility that is not intended for commercial use;
  • corporate taxpayers who have not yet started commercial operation; or
  • a corporate taxpayer whose annual turnover exceeds the Rp. 4.8 billion threshold within a year after commencing its commercial operation.

The business income covered in the regulation does not include income from independent professional services, such as, services provided by lawyers, accountants, medical doctors, and notaries, among others.

Taxpayers qualifying for a different final tax regime such as construction companies are not eligible for this 1% final tax.

Specific rules are provided for a determination of the annual gross turnover and will be based on the annual gross turnover of the last fiscal year before issuance of this regulation. Annual extrapolation may be necessary, if the last fiscal year does not cover the full twelve-month period. For taxpayers who just registered in the year when this regulation takes effect, the annual gross turnover will be determined by annualizing the gross turnover from the date of tax registration up to the month before issuance of this regulation. For newly established taxpayers, the annual gross turnover will be based on income of the first month, annualized for twelve months.

Tax losses relating to income subject to this final tax, either incurring in the current year or in the years before the application of the final tax, will be forfeited.
Tax losses relating to business activities not subject to the final tax may be carried forward, subject to the general rules.

Income of qualifying taxpayers other than from business that is subject to this 1% final tax will be taxed according to the prevailing tax regulations.

A taxpayer that qualifies for this final tax in a fiscal year may be subject to normal tax in the following year if its annual turnover exceeds the threshold.

The regulation will become effective 1 July 2013. The implementation procedure for this final tax will be regulated by Minister of Finance Regulation, which is expected to be issued soon.

For additional information with respect to this Alert, please contact the following:

Purwantono, Sarwoko & Sandjaja Consult, Jakarta
  • Ben Koesmoeljana
    +62 21 5289 5030
  • Dodi Suryadarma
    +62 21 5289 5236
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
  • Jeff Hongo
    +1 212 773 6143
  • Kaz Parsch
    +1 212 773 7201
  • Bee-Khun Yap
    +1 212 773 1816

EYG no. CM3579