Indonesia: The increase in turnover limits of small businesses

The annual turnover threshold of small businesses as a VAT-able Entrepreneur (“PKP”) was raised to Rp4,8 billion from Rp600 million which is stipulated in MoF Regulation No.197/PMK.03/2013 implemented on December 20th, 2013 and became effective starting 1 January 2014.

VAT Law stipulates that a person who make a supply of Taxable Goods and/or Taxable Services except for those small entrepreneurs as defined by the MoF, shall declare his business as PKP and shall collect, pay and report VAT payable. As per this PMK, businesses with a turnover not exceeding Rp4,8 billion a year, may elect to be a “Non PKP”, and hence not required to carry out its VAT obligations. 

This MoF Regulation is to encouraging Taxpayers with a turnover not exceeding Rp4,8 billion, increase their tax participation using Scheme Final Income Tax (“PPh” ) as stated in GR No.46 Year 2013. 

Further, with this increase in turnover threshold, small businesses which are “non- PKP” are no longer obliged to make a VAT Invoice and VAT monthly return. Hence, the cost of tax compliance will be lower. 

Tax payers’ compliance and obligation are much easier with these measures as mentioned above.

New Income Tax Provision on the Bond Interest 

In order to encourage development of mutual funds in Indonesia, as well as enhancing the role of bond mutual funds to absorb and improve bond market liquidity, the Government made changes to Government regulation (“GR”) No.16 Year 2009 on Income Tax Form Bond Interest. It sets out in the GR No.100 Year 2013 dated 31 December 2013. 

The GR has changed the content of Article 2 and Article 3 GR No.16 in respect of the provisions of the Income Tax on bonds form, and the amount of income tax provisions of the Bond Interest. The interest income received and/or accrued by a taxpayer should be subject to Final Tax. 

It does not apply in the case of a Bond Interest income recipients are: 

a. The Pension fund in which the establishment or formation has been approved by the MoF and fulfill the requirements stipulated in Article 4 (3h) of Income Tax Law No.36 Year 2008; 

b. Banks which are incorporated in Indonesia or a foreign bank branch in Indonesia. 

The interest income received and/or earned by the pension funds and banks are not subject to the Final withholding tax. However, such interest income is subject to the general income tax rate in accordance with the Income Tax Law No.36 Year 2008. 

The income tax rate is:

 • Interest of bonds with a coupon (interest bearing debt securities) amounted to: 

1) 15% for domestic taxpayers and permanent establishment, and

2) 20% or in accordance with the rates based on the approval of double taxation for foreign taxpayer other than a business still, from the gross amount of interest over the period of ownership (holding period) bonds. 

• Bonds discount with a coupon: 15% for domestic taxpayers and permanent establishment, and 20% or in accordance with the rates based on the approval of double taxation for foreign taxpayer in addition to the permanent establishment. It is arrived at the difference between the sales price or its nominal value over the purchase price, but excluding accrued interest. 

• Bonds discount without interest at:

1) 15% for domestic taxpayers and permanent establishment, and 

2) 20% or in accordance with the rates based on double taxation avoidance agreement for taxpayers abroad as a permanent establishment, which is calculated from the difference between the selling price or the nominal value of bonds over the acquisition price.

• Interest and/or discounts received from bonds and/or mutual funds earned taxpayer listed on the Financial Services Authority amounted to: 

1) 5% for the year 2014 until the year 2020, and 

2) 10% for the year 2021 onwards. This regulation was in effect from 31 December 2013.