SMEs Push for Income Tax Cut

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  • TEMPO.CO, Jakarta - The Indonesian Micro, Small and Medium Enterprises Association is asking President Joko Widodo to fulfill his promise to lower the income tax subjected to the SME sector. The Association's Chairman Ikhsan Ingratubun said a tax income cut will reduce the financial burden that low-income entrepreneurs must carry.

    Ikhsan said the current tax rate of 1.0 percent is too burdensome, especially for micro businesses like street food vendors or small diners.

    "It's hard enough for them to make ends meet," Ikhsan said on Monday, November 28.  

    President Widodo had promised an income tax reduction to a number of SME businesses he met with at the State Palace on Friday last week. The tax rate could be lowered to as low as 0.25 percent. The President also committed to reduce the retribution that must be paid by SME businesses that joined the tax amnesty program.  

    Meanwhile, the Tax DG's director for potential, compliance and tax revenues, Yon Arsal the plan to lower SME tax income must be studied further, as a tax income that is too low will lead to a state revenue decline.

    "We'll have to see the segmentation first. If everything is cut, revenues will fall," Yon said on Monday, November 28, 2016.

    Head of Fiscal Policy, Suahasil Nazara, said it was considering a decrease in the tax burden businesses with the potential magnitude of tax that can be drawn. 

    The SME Association recorded there are at least 20 million small and micro businesses, located in 500 districts/cities throughout Indonesia.

    Ikhsan said that 60 percent or about 12 million of them are micro businesses, 30 percent or 6 million are in small businesses, and only 2 million are categorized as medium businesses.  

    "Micro and small entrepreneurs are having a hard time growing their businesses due to the tax liability and difficulties to seek funding."

    The Center for Indonesian Taxation Center's executive director Yustinus Prastowo estimates there are 35 million SMEs in Indonesia. He suggested applying tax rates progressively based on business categories and criteria. Micro businesses, for example, should only pay 0.25 percent, while small and medium businesses can pay up to 1.0 percent.


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