President Joko Widodo dialogue with an entrepreneur at the launching of the SMEs Income Tax Reduction to 0.5 per cent in Surabaya, Friday (22/6).

JAKARTA (TheInsiderStories)—Indonesia’s President Joko Widodo has released the Government Regulation 23/2018 on the reducing the small medium enterprises (SMEs) income tax rate to 0.5 per cent from currently 1 per cent, he said on Friday (22/06).

The regulation will take effect July 1, 2018, according to the press release received by TheInsiderStories. The policy aims for the taxpayers with a gross revenue up to Rp4.8 billion (US$342,857) per year.

The regulation is an amendment of Government Regulation 46/2013. There are two principal changes in the new regulation. First is lower final income tax to 0.5 per cent from initial 1 per cent which must be paid monthly.

The regulation also set the term of the imposition of tax income of 7 years for the individual taxpayer, four years for cooperative and firm, and three years for limited liabilities company.

The policy is intended to encourage SMEs to actively involved in formal economic activities and improve the economic resilience of Indonesia. Lower income tax is expected to give time for SMEs to prepare themselves before independently paying tax in accordance with the income tax law.

SMEs play an important role in Indonesia’s economy. In the last five years, the contribution of SMEs increased to 60.34 per cent of GDP from 57.84 per cent of GDP. The contribution in the employment also increases from 96.99 per cent to 97.22 per cent in the last five years.

Due to this important role, the Indonesian government is preparing some incentive to boost SMEs. Previously, the Minister of Finance Sri Mulyani said the government was finalizing a regulation on fiscal incentives for new investment below Rp500 billion.

Under the regulation being prepared, fresh investments worth between Rp100 billion and Rp500 billion will be eligible for a 50 per cent cut in corporation tax for five years for pioneering industries.

The industries eligible for the incentives will be the same industries stipulated in Finance Ministry Regulation No. 35/2018 on tax holidays, comprised of pharmaceutical raw materials, petrochemicals, and semiconductors, as well as electrical parts and manufacturing.

The latest incentive is among several that the government is preparing to attract more investments to South East Asia’s largest economy.

The policy will complement the tax incentive regulation issued by the government for 17 pioneer industries including transportation, telecommunications, robotic components, oil and gas refinery, train engines, medical devices, pharmaceutical raw materials, power plant machinery, and processing of metals and agricultural products among others.

The regulation granted a 100 per cent exemption on corporate income tax for 20 years to the new business with a total minimum investment of Rp30 trillion.