Legal Brief: Government Regulation No. 46/2013

Small and medium sized enterprises (“SMEs”) and entrepreneurs play an important role in the Indonesian economy, the fact that SMEs account for over 99 per cent of all firms in all economic sectors and employ over 95 per cent of the population is a testament on how crucial SMEs to the overall wellbeing of the Nation.

However, in contrary to the above seemingly astronomical SMEs potential, it has been widely acknowledged that most of SMEs in Indonesia do not or paid little income tax to the Indonesian Government. According to the latest data gathered from the Ministry of Finance, with a population of around 240 million people and the number of business entities (not including micro enterprises) are around 22.6 million business entities, The Individual Tax Return Filing to Individual Taxpayer Ratio is a mere 7.73% while the Corporate Tax Return Filing to Corporate Taxpayer Ratio amounted to only 3.6%.

To increase this meagre tax ratio the Indonesian Government have just issued a new taxation related regulation aimed at SMEs by introducing Government Regulation No. 46 of year 2013 regarding Income Tax Applicable to Income Derived From Business Which Are Received or Obtained by Tax Payers Who Generates Certain Gross Turnover (“GR 46/2013”) commencing as of July 1st 2013. It is stipulated in such regulation that for any business that generates turnover of up to IDR 4.8 billion as of the previous year, they will be required to pay a flat income tax of 1% calculated based on its gross turnover. Such payment shall be made on monthly basis and it must be paid before the 15th day of the following month.

Under Article 2 Paragraph (1), Article 3 Paragraph (1) and (2), and in conjunction with Article 4 paragraph (1) GR 46/2013, for every income of the business received or earned by taxpayers, who have a certain turnover, shall be subject to final income tax of 1% of gross turnover every month.

While the term “taxpayer who has a certain gross turnover” means the taxpayer who meets the following criteria:

A. Individual taxpayer or corporate taxpayers not including a permanent establishment, and
B. Receive income from the business, excluding income from independent personal services, with respect to the gross turnover does not exceed Rp. 4,800,000,000.00 in one tax year.

Taxpayers are excluded from the above provision if they fulfil the following criteria:

1.   for individual taxpayers:

a) individual taxpayers who earn income from independent personal services with respect to, which include:

1) experts who do the independent personal services, consisting of lawyers, accountants, architects, doctors, consultants, notaries, appraisers, and actuaries;
2) music players , host, singer, comedian, movie star, soap star, commercials, film director, film crew, photo model, fashion models, drama artists, and dancers;
3) sportsman;
4) counsellor, teacher, coach, speaker, educator , and moderator;
5) writer, researcher, and translator;
6) advertisement agency;
7) supervisor or project manager;
8) intermediate;
9) officers merchandise vendors;
10) insurance agent, and
11) multilevel marketing or direct selling and other similar activities;

b)   individual taxpayers who undertake trade activities and / or services which in their business use the facilities or infrastructure that can be assembled, whether settled or not settled, or
c)   individual taxpayers who undertake trade activities and / or services in an attempt to use some or all of the places in the public interest that are not destined for a place of business or selling.

2.   For corporate taxpayers:

a)   corporate taxpayers who derive income from independent personal services;
b)   corporate taxpayers who have not been in commercial operation, or
c)   corporate taxpayers who are in a period of 1 year after the commercial operation receive gross turnover exceeds Rp. 4,800,000,000,00.

This income tax is final tax; it means Company does not recalculate income tax at the end of the year. However Company will still have obligation to report annual income tax return. Based on this regulation, for companies that have annual turnover above Rp. 4.8 bio the obligation to pay monthly installment (income tax article 25) has also been annulled.

Particular rules are provided for classification of the annual gross turnover and will be based on the annual gross turnover of the previous fiscal year prior to the publication of this regulation. Further adjustment to the calculation of tax may be required if the last fiscal year does not cover the full twelve month period.

For new tax payers who registered its tax in the year of the application of this regulation, the annual gross turnover will be determined by annualizing the gross turnover from the date of tax registration up to the month before the issuance of this regulation.

For newly registered tax payers, the annual gross turnover will be based on income of their first month of operation, and annualized for twelve months.

Tax losses associated with income subject to this final tax, either suffered in the current financial year or previous year before the issuance of this final tax, will be forfeited. However tax losses associated to business operation not subject to the final tax may be carried forward, subject to general rules.

Income of tax payers that are qualified other than from business that is subject to this regulation will be taxed in accordance to the prevailing tax regulation, and for tax payers that are qualified for this final tax in a fiscal year may be subject to normal tax in the following year should its annual turnover exceeds the applicable level.

For further information with regards to this matter please contact Our Firm’s tax specialist Mr. Yohanes Liman  ( who will be more than happy to answer all of your taxation related queries.