Income tax treatment and facilities for MSMEs in the emerging market: A qualitative analysis of current laws and regulations

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Abstract

This study aims to elucidate the income tax treatment for the micro, small, and medium enterprises (MSMEs) industry in Indonesia and the tax facilities available to facilitate the MSME industry’s growth into a large business unit, following current Indonesian tax laws, addressing the widespread issues within this industry regarding comprehension of applicable tax regulations and enhancing compliance among MSMEs taxpayers. The authors employ a qualitative method encompassing a review of academic literature and related materials, focus group discussions for input into research report design, and a subjective approach to evaluating existing data and materials. The study’s findings reveal that MSMEs in Indonesia can maintain records without mandatory bookkeeping as long as their business turnover does not exceed IDR 4,800,000,000, benefiting from a 0.5 percent final income tax rate under Government Regulation No. 23 of 2018 for a specified period. Once the turnover exceeds IDR 4,800,000,000, it becomes mandatory to keep bookkeeping records, prepare financial reports at the end of the year, and pay corporate income tax based on the prevailing income tax law in Indonesia, which is 22 percent of estimated net income, with a tax rate reduction facility of 50 percent.

Keywords: MSMEs, Tax Facilities, Income Tax, Indonesia

Authors’ individual contribution: Conceptualization — Y., E.S., and P.D.I.K.; Methodology — S.M. and E.H.; Validation — A.S.P.; Writing — Original Draft — Y., S.M., and P.D.I.K.; Writing — Review & Editing — S.M. and E.H.; Supervision — Y., P.D.I.K., and A.S.P.; Project Administration — E.S. and E.H.; Funding Acquisition — Y. and S.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34, M41, M48

Received: 28.05.2024
Revised: 24.10.2024; 12.01.2025; 11.03.2025
Accepted: 08.04.2025
Published online: 11.04.2025

How to cite this paper: Yanto, Suyono, E., Maghfiroh, S., Herwiyanti, E., Kusuma, P. D. I., & Purwati, A. S. (2025). Income tax treatment and facilities for MSMEs in the emerging market: A qualitative analysis of current laws and regulations. Corporate Law & Governance Review, 7(2), 41–49. https://doi.org/10.22495/clgrv7i2p4