Indonesia: New tax incentives for SMEs through the ratification of Government Regulation No. 46 Year 2013 (“GR 46/2013”)

What is stipulated in GR 46/2013? 

It governs the income tax on the income of the business derived by the taxpayer who has a certain gross turnover, categorized as small to medium sized tax payers. This regulation is effective 1 July 2013. The spirit behind this regulation is for the tax extensification through the introduction of a new simpler tax rule. 

Under what conditions the GR 46/2013 is applied? 

The GR 46/2013 is applied on all income of the business derived by the taxpayer with gross turnover not exceeding IDR4.8 billion (equivalent to USD480 thousands) within a fiscal year, which equates to a calendar year. 

The tax rate is 1% of the gross turnover. All businesses are subject to this regulation. Businesses include any types of trading activities, industries, and services. 

What is excluded from the application of the GR 46/2013? 

Income is not subject to the GR 46/2013 if it meets the following criteria: 

a. Income from services in connection with doing works not tied to any employers, such as: doctors, lawyers/attorneys, accountants, notaries, architects, musicians, masters of ceremony, anchors, and the like; or 

b. Income from the business that is subject to final income tax (Article 4 paragraph 2), such as a dorm room rental, house rental, construction services (planning, implementation and supervision), income tax on oil and gas business, and so forth which are already regulated by particular Government Regulations; or 

c. Income derived from outside the country. 

Who are the tax subjects under the GR 46/2013? 

The parties subject to the GR 46/2013 are: 

a. Individuals; and 

b. Corporations - excluding Permanent Establishment (“PE”), that receive income with a gross turnover not exceeding IDR4.8 billion (equivalent to USD480 thousands). 

Who is excluded as the tax subjects under the GR 46/2013? 

The parties not subject to the GR 46/2013 are as follows: 

a. Individuals who conduct trading activities and/ or services of which they use facilities that can be assembled and use the business facilities, wholly or partly, for public interests which are not used for commercial activities. Examples of these individuals are itinerant traders and hawkers. 

b. Corporations that have not started a commercial operation or those that within a period of one (1) year after starting a commercial operation have a gross turnover exceeding IDR 4.8 billion. 

Those individuals or corporations described above shall implement the provisions of taxation in accordance with the General Taxation Provisions and Procedures Law and General Income Tax Law.

What category of income tax governed under the GR 46/2013? 

Income taxes regulated under the GR 46/2013 are categorized as final income tax article 4 paragraph 2. Hence, the taxpayers as mentioned above shall make a monthly payment of final income tax (Article 4(2)), instead of article 25 (a monthly tax installment) since the income is solely subject to final tax. 

How to fulfill the tax obligation with regards to the GR 46/2013? 

The tax payment must be made no later than 15th day of the following month using a tax payment slip (“SSP”). If the SSP is already validated as “NTPN”, taxpayers do not need to report monthly tax return (Article 4(2)). The tax payment must be made using the tax code of 411128 and the tax type of 420. 

Furthermore, the income tax paid should be reported in the annual income tax return in the group income which is subject to the final tax.

What is the tax benefit related to the implementation of to the GR 46/2013? 

Based on the Directorate General of Taxation (“DGT”) regulation No. PER-32/PJ/2013 dated 25 September 2013, the tax payer may apply for the exemption from withholding and/or collection of non final income tax to the DGT. The DGT will then issue an exemption certificate which will be valid until the end of the fiscal year concerned.